International. Arbitration Report. Comverse, Inc: Methodological Issues In Anti-Suit Injunctions MEALEY S

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1 MEALEY S International Arbitration Report Comverse, Inc: Methodological Issues In Anti-Suit Injunctions by Julie Bédard, Esq. and Viren Mascarenhas, Esq. Skadden, Arps, Slate, Meagher & Flom LLP New York A commentary article reprinted from the February 2007 issue of Mealey s International Arbitration Report

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3 MEALEY S International Arbitration Report Vol. 22, #2 February 2007 Commentary Comverse, Inc: Methodological Issues In Anti-Suit Injunctions By Julie Bédard and Viren Mascarenhas [Editor s Note: Ms. Julie Bédard and Mr. Viren Mascarenhas are associates of Skadden, Arps, Slate, Meagher & Flom LLP, New York. Copyright 2007 by the authors. Replies to this commentary are welcome.] Introduction What happens when a party to an arbitration agreement not only arbitrates but also begins related proceedings in a foreign court? It all depends on the nature and the status of the foreign proceeding and its relationship with the arbitration. The United States District Court for the Southern District of New York recently revisited that question in Comverse, Inc. v. American Telecommunications., Inc. Chile S.A. 1 It held that a respondent that actively participated in a New York arbitration did not fail to arbitrate although it had filed a complaint with the Chilean antitrust authorities. The district court also refused to issue an anti-suit injunction against the Chilean antitrust proceeding because it was public and to be carried by a Chilean prosecutor, as opposed to the respondent in the arbitration. 2 The district court s reasoning does not follow Second Circuit s jurisprudence on foreign anti-suit injunctions in aid of arbitration because it starts with the traditional preliminary injunction test rather than the anti-suit injunction test. This article considers two issues raised by the Comverse case: (1) the relationship between the consideration of the public interest in all injunction proceedings and the comity analysis pertaining specifically to anti-suit injunctions; and (2) the apparent emergence of a circuit split on the application of the traditional preliminary injunction criteria in anti-suit injunction cases. I. A Manufacturer-Distributor Dispute Comverse, Inc. ( Comverse ), an American provider of software and telecommunications systems, and American Telecommunications, Inc. Chile S.A. ( ATI ), a Chilean distributor entered in an agreement (the Agreement ) 3 for ATI to resell Comverse products in certain South American countries. ATI was to be the exclusive reseller with respect to accounts located in Chile. 4 Relations broke down and Comverse instituted arbitration proceedings against ATI in New York seeking damages under the Agreement as well as injunctive relief to enforce the Agreement s non-compete and non-disclosure provisions. 5 In the wake of Comverse s arbitration demand, ATI filed a request that the Chilean National Economic Prosecutor (the Chilean Prosecutor ) investigate whether the non-compete provision of the Agreement was enforceable under Chilean competition law (the Investigation ). 6 While this proceeding was pending, ATI also brought a direct claim against Comverse Chile, S.A. before the Chilean Competition Tribunal for preliminary injunctive relief to compel Comverse to continue supplying ATI with equipment, software, and services as it had done under the... [Agreement] ( ATI s Direct Action ). 7 ATI apparently had entered into long-term maintenance contracts with some of its customers and purportedly required Comverse products to fulfill its maintenance obligations. In addition, ATI sought to nullify the year-long post-termination non-compete provision arguing that if unable to obtain Comverse products, it should be

4 Vol. 22, #2 February 2007 MEALEY S International Arbitration Report allowed to buy products from other companies. Significantly, ATI invoked the public interest in maintaining the Chilean telecommunications market. 8 Thus, ATI sought to use Chilean competition law as a shield and a sword: to block the non-compete consequences of Comverse s allegations of breach and to seek an order from the Chilean courts enforcing Comverse s obligations under the Agreement. In New York, Comverse sought (1) an order compelling arbitration and (2) a preliminary anti-suit injunction against the Chilean Prosecutor s Investigation and ATI s Direct Action pending resolution of the arbitration. 9 After the district court had heard the parties but before it had rendered its judgment, the Chilean Competition Tribunal dismissed ATI s Direct Action for a preliminary injunction. The Chilean Prosecutor s Investigation is pending. 10 The district court denied Comverse s order to compel ATI to arbitrate. Both parties agreed that the Agreement s arbitration provision was valid and both actively participated in the arbitration. Thus, in the court s view, ATI had not failed, neglected or refused to arbitrate. 11 And the court further held that ATI s commencement of litigation in Chile was not in itself a failure or refusal to arbitrate. 12 The district court also denied Comverse s related request for a preliminary anti-suit injunction against the Chilean Prosecutor s Investigation pending resolution of the arbitration. Due to the dismissal of ATI s Direct Action in Chile, the request for an anti-suit injunction against ATI s Direct Action in Chile (which stood a good chance of success) was dismissed as moot. II. Comity Or Regard For Public Consequences As Preliminary Consideration A. Circuit Split On Comity Federal courts may enjoin those over whom they have personal jurisdiction from litigating before foreign tribunals in case of overlap with litigation or arbitration pending in the United States. 13 Courts normally require that the proceeding proposed to be enjoined involves the same parties (although perfect identity is not necessary) and the same issues. In the Second Circuit, the resolution of the case before the enjoining court must be dispositive of the enjoined action. 14 But even if these threshold requirements are met, the federal courts still need to determine whether the foreign anti-suit injunction is warranted. This further analysis has split the circuit courts. The Second, 15 Third, 16 Sixth 17 and the District of Columbia Circuits 18 have adopted a restrictive inquiry focusing on whether the foreign action imperils the forum jurisdiction or threatens a strong national policy. 19 Duplication of issues, vexatious or oppressive litigation, and harassment are alone insufficient to interfere in a foreign action. By contrast, the Fifth 20 and Ninth 21 Circuits have adopted an approach that the Seventh Circuit Court of Appeals has said to be liberal. 22 Under it, an antisuit injunction may be granted if the foreign litigation is considered to be vexatious or oppressive, including because it would result in delay, inconvenience, expense, inconsistency or a race to judgment. 23 Since parallel proceedings often result in at least some inconvenience or vexatiousness, courts adopting this approach are far more likely to issue anti-suit injunctions than those which would issue such injunctions only to protect the domestic court s jurisdiction or to vindicate a critical national policy. The First Circuit has chosen a middle ground. 24 Rejecting the liberal approach, 25 and commending the restrictive analysis but without uncritical acceptance, 26 it held somewhat ambiguously in Quaak v. Goerdeler Bedrijfsrevisoren that in every case a district court should examine the totality of the circumstances. 27 Not surprisingly, the circuit courts disagree on how comity a natural deference to foreign official acts done within the borders of another sovereign 28 fits in the analysis. 29 Courts applying the liberal approach to anti-suit injunctions tend to minimize the role of international comity, while those applying the more conservative approach consider such comity critical. 30 The Second Circuit recently dealt with the issuance of foreign anti-suit injunctions in Axtel, which involved questions of Mexican corporate law, including whether the Belgian party was a shareholder of one of the Mexican respondents (an issue that would bear critically on arbitrability). One of the Mexican respondents in the arbitration sued in Mexico for a 2

5 MEALEY S International Arbitration Report Vol. 22, #2 February 2007 ruling that the Belgian claimant was not a shareholder and therefore not entitled to arbitrate the dispute under the respondent s bylaws. 31 The Court of Appeals noted that Mexico had a strong interest in determining who could be considered a shareholder of a Mexican corporation and whether particular transactions were permissible under a Mexican corporation s bylaws. 32 Based on this and other factors, the Axtel court found that the district court had not abused its discretion in denying LAIF X s motion for an antisuit injunction. 33 B. Comverse s Consideration Of Chilean Public Interest In Comverse, the district court endorsed the cautious approach to anti-suit injunctions 34 as applied in Axtel 35 and previously articulated by the Second Circuit in Paramedics Electromedicina Comercial, Ltda. v. GE Medical Systems Info. Techs., Inc. 36 and in China Trade & Dev. Corp. v. M.V. Choong Yong. 37 However, rather than discussing the factors peculiar to antisuit injunctions, the court focused its analysis on the traditional preliminary injunction criteria, explaining that [n]otwithstanding the general hesitation to issue a foreign anti-suit injunction, a preliminary injunction can issue if the movant shows (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. 38 Thus, the Comverse court did not expressly undertake the comity analysis that forms part of the anti-suit injunction test. However, within the context of its discussion of the traditional injunction criteria, it explicitly agreed with the Second Circuit s admonition that courts of equity should pay particular regard for the public consequences in employing the extraordinary remedy of injunction. 39 Accordingly, it examined in detail the pending Chilean action that could be brought by the Chilean Prosecutor. The court noted that ATI had requested that the Chilean Prosecutor (charged with enforcing Chilean competition law before the Chilean Competition Tribunal) investigate the complaint and decide whether to prosecute the action 40 because private parties claims are not automatically taken to the Chilean Competition Tribunal. Rather, prosecution would be conducted by the Chilean Prosecutor. 41 The Comverse court concluded that [a]lthough the determinations of the Chilean Competition Tribunal may well have implications for the private parties involved in proceedings before it, these are incidental to the Tribunal s stated purpose of safeguarding the freedom of economic markets in the public interest. 42 The anti-suit injunction was refused. III. Traditional Preliminary Injunction Test For Anti-suit Injunctions: If And When A. Whether Traditional Preliminary Injunction Criteria Apply The Comverse court launched into the traditional preliminary injunction analysis of irreparable harm plus (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation. Citing a recent Second Circuit judgment, Millennium Seacarriers, the court explained that [t]his analytic framework applies to a preliminary anti-suit injunction as it does to any other sort of preliminary injunction. 43 As discussed below, the proposition that the typical, domestic preliminary injunction framework applies to preliminary anti-suit injunctions is not accepted in the First and Ninth Circuits. Thus, it appears that a circuit split may be developing on this issue. Millennium Seacarriers, the Second Circuit case relied on by Comverse, explains that both the preliminary injunction analysis and the specific analysis pertaining to the anti-suit injunction need to be conducted. Reviewing a bankruptcy court decision, the Second Circuit Court of Appeals explained that the antisuit injunction analysis is not limited to permanent injunctions on a party from pursuing litigation in a foreign forum. 44 The court held that only once the bankruptcy court addressed the propriety of imposing an anti-suit injunction to see whether it is warranted may it then make findings on whether it is appropriate to enter a preliminary injunction. 45 The District Court for the Southern District of New York recently revisited the issue of standards for issuing a preliminary anti-suit injunction. In Storm, LLC v. Telenor Mobile Comms. 46 after reviewing the case s convoluted history that included a preliminary determination by an UNCITRAL tribunal in New York that the dispute concerning the validity and effect of a shareholders agreement was arbitrable, and judicial

6 Vol. 22, #2 February 2007 MEALEY S International Arbitration Report decisions in Ukrainian proceedings to the contrary, the district court issued a preliminary anti-suit injunction. The court first found that the threshold requirements for the issuance of an anti-suit injunction (i.e., identify of parties and dispositive litigation) were met. It then continued its analysis through the lens of whether the movant could demonstrate its likelihood of success in obtaining a permanent antisuit injunction. It found that (1) the Ukrainian litigation frustrated the federal policy favoring the enforcement of arbitration agreements; (2) it had been conducted in the most vexatious way possible ; (3) it threatened the jurisdiction of the court to enforce the arbitration agreement; (4) it threatened the very existence of the arbitration; and (5) it had created extensive delays in the arbitration, added considerable expense and created an acute risk of inconsistent adjudications. 47 Thus, the court concluded that the movant was extremely likely to succeed in establishing that virtually all of the factors considered by courts in granting antisuit injunctions favor[ed] its cause. 48 the court also ruled that the movant was clearly under the threat of imminent and irreparable harm since it faced possible criminal sanctions from the Ukrainian litigation for pursuing the arbitration. 49 In Goss Int l Corp. v. Tokyo Kikai Seisakusho, Ltd., 50 the District Court of the Northern District of Iowa indicated that the Eighth Circuit Court of Appeals never has discussed the standards for issuing a preliminary foreign anti-suit injunction. The district court applied the traditional factors for preliminary injunction analysis. 51 However, the court incorporated the anti-suit injunction analysis into the first stage of its preliminary injunction analysis when discussing the movant s likelihood of success on the merits of obtaining a permanent injunction. Under this approach, the anti-suit injunction analysis enters the calculus at the first stage of the preliminary injunction analysis. By contrast, the Ninth Circuit Court of Appeals recently came to the conclusion in Gallo Winery that [t]he suitability of an anti-suit injunction involves different considerations from the suitability of other preliminary injunctions. An anti-suit injunction, by its nature, will involve detailed analysis of international comity. 52 The Ninth Circuit then only conducted the anti-suit injunction analysis. 53 The First Circuit Court of Appeals, for its part, opined in Quaak that the traditional four-part test for preliminary injunctions provides an awkward fit in cases involving international anti-suit injunctions, 54 and thus district courts have no obligation to employ it in that context. 55 In the permanent injunction context, the Third Circuit has raised the issue of whether traditional injunction analysis is ever fitting in an anti-suit injunction analysis. In Stonington Partners, Inc. v. Lernout & Hauspie Speech Products N.V., the Third Circuit stated that we have not specifically evaluated irreparable injury and other Rule 65 requirements of the Federal Rules of Civil Procedure, but instead reached only the threshold requirements unique to anti-suit injunctions, namely comity concerns, which we view as more restrictive than the general requirements of Rule [I]f the requirements for an anti-suit injunction are met, these supplant the need for proof under Rule Thus, it appears there are three approaches to analyzing preliminary foreign anti-suit injunctions. Under the Second Circuit view, courts conduct both the preliminary injunction and anti-suit injunction analyses. For the Second Circuit, the anti-suit injunction analysis is separate and precedes the preliminary injunction analysis. For the Goss and Storm district courts, the anti-suit injunction analysis forms part of the preliminary injunction analysis by determining whether the movant will be likely to succeed on the merits of obtaining a permanent anti-suit injunction. The First and Ninth Circuits, however, have proposed an alternative that requires conducting only the antisuit injunction analysis. B. Starting With The Traditional Preliminary Injunction Criteria As discussed, in the Second Circuit, courts are supposed to conduct both the preliminary injunction and the anti-suit injunction analysis. However, in two recent cases including in Comverse, district courts have begun their analyses with the traditional preliminary injunction test rather than the anti-suit injunction test. Indeed, they never reached the analysis of the factors pertaining specifically to the issuance of an anti-suit injunction. In Empresa Generadora de Electricidad ITABO v. Corp. Dominicana de Empresas Elec. Estatales

7 MEALEY S International Arbitration Report Vol. 22, #2 February 2007 ( CDEEE ), 57 the Southern District of New York District Court signaled that, regardless of whether a preliminary or permanent anti-suit injunction is brought, courts might focus first on the irreparable harm requirement as a threshold to commencing the anti-suit injunction analysis. 58 In Empresa, the court held that the movant had not met its heavy burden of establishing irreparable harm. 59 The court concluded that the remainder of the preliminary injunction factors did not have to be examined. 60 Similarly, the Comverse court commenced (and concluded) its analysis with a discussion of the irreparable harm requirement alone. The court recognized that the deprivation of a party s contractual right to arbitrate constitutes irreparable harm, especially in light of the strong federal policy favoring arbitration as an alternative means of dispute resolution. 61 However, the court explained that only parties to an arbitration agreement are bound by it. In Comverse, the timeline of events and the distinct nature of the two Chilean proceedings the Chilean Prosecutor s Investigation, on the one hand, and ATI s Direct Action, on the other is relevant. On October 5, 2006, the district court heard the parties regarding the two proceedings. The Chilean Tribunal dismissed ATI s Direct Action for a preliminary injunction on October 12, The district court issued the Comverse judgment on October 23, Then, as now, the Chilean Prosecutor s Investigation was still pending. Regarding the Chilean Prosecutor s Investigation, the Comverse court found that since the Chilean action would be brought, if at all, by the Chilean Prosecutor rather than by ATI, and since the Chilean Prosecutor was not a party to the Agreement, Comverse had no contractual right to arbitrate this dispute with the Chilean Prosecutor. Accordingly, Comverse would not be deprived of any arbitration rights by the absence of an anti-suit injunction. 62 The district court dismissed as moot Comverse s concern about ATI s Direct Action. Chilean competition law permits requests for preliminary injunctions to come from the party directly prior to a prosecution being commenced, if warranted, by the Chilean Prosecutor. 63 However, since the Chilean National Tribunal already had denied ATI s request for preliminary injunctive relief, the Comverse court concluded there was no irreparable harm and that an anti-suit injunction should not be issued. 64 Had ATI s Direct Action not been denied, following its reasoning that the deprivation of a party s contractual right to arbitrate constitutes irreparable harm, the district court may have found grounds for issuing a preliminary anti-suit injunction to allow the dispute to be submitted to the arbitral panel pursuant to the broad arbitration clause contained in the Agreement. In order to make this determination, however, the court may have had to make a threshold determination of whether the issues before the Chilean action brought directly by ATI against Comverse were arbitrable or it could have decided to refer this matter to arbitration. Comverse argued that a plaintiff [should not be permitted] to circumvent forum selection and arbitration clauses merely by stating claims under laws not recognized by the forum selected in the agreement. A plaintiff simply would have to allege violations of his country s tort law or his country s statutory law or his country s property law in order to render nugatory any such clause. 65 Thus, Comverse submitted that ATI s application for provisional relief should be submitted for adjudication to the arbitration panel, and not before the Chilean Competition Court. 66 In this respect, Comverse alleged that ATI s claims in the Chilean preliminary injunction proceeding were arbitrable. 67 Comverse began its analysis with a reference to the arbitrability of U.S. antitrust claims under U.S. law. As the U.S. Supreme Court stated: In Mitsubishi... we recognized that arbitral tribunals are readily capable of handling the factual and legal complexities of antitrust claims, notwithstanding the absence of judicial instruction and supervision. 68 Comverse argued that foreign competition law claims should be treated no differently from U.S. antitrust claims and hence should be referred to arbitration. 69 It relied on Evans & Sutherland Computer Corp. v. Thomson Training & Simulation Ltd., 70 in which the District Court for the Southern District of New York granted a motion to compel arbitration against a respondent that had commenced proceedings in England, alleging that part of the agreement between the parties was illegal under the British Restrictive Trade Practices Act. 71

8 Vol. 22, #2 February 2007 MEALEY S International Arbitration Report In response, ATI maintained that its Direct Action before the Chilean Competition Tribunal was not inconsistent with the arbitration agreement because it focused on the possible conduct of Comverse Chile in violation of Chilean competition law, compliance with which is mandatory for any entity operating in Chile. According to ATI, it was only asking for a temporary order requiring Comverse Chile to supply the spare parts needed to support telecommunications companies in Chile, thus maintaining the status quo for Chilean telecommunications customers while the Chilean Prosecutor and the Competition Tribunal consider[ed] the matter. 72 ATI also emphasized that its complaint did not include any civil claims for damages, and that it had not filed a separate civil proceeding in the Chilean courts seeking damages or other private relief. 73 Had the issue still been before it, the district court could have enjoined the preliminary injunction sought by ATI in its Direct Action (if it was arbitrable) because it had a strong private flavor and apparently overlapped with the enforceability of the noncompete covenant by Comverse in the arbitration. By contrast, the Chilean Prosecutor Investigation was clearly public and thus unlikely to be seen to deprive Comverse of its right to arbitrate. Conclusion The reasoning of the lower courts in the Second Circuit, including the Comverse court, shows that the methodology to decide anti-suit injunction applications remains unsettled. The Second Circuit s extensive case law on foreign anti-suit injunctions apparently requires even further development to address in further detail the relationship between the traditional preliminary injunction criteria and the anti-suit injunction test. v. Bresht, No /2005 (N.Y. Sup. Ct. Aug. 17, 2006) where the New York Supreme Court granted a motion to stay a New York action pending the resolution of a London arbitration even though the New York litigation had been initiated before the arbitration proceeding. The court explained that strict identity of parties and issues between the two proceedings is not required; instead the standard is whether the claims... are sufficiently interrelated. Id. at The district court never reached the merits of a separate request for an anti-suit injunction against a preliminary injunction proceeding commenced in Chile against an affiliate of the claimant in the arbitration. Such request could have been granted, but it became moot after the Chilean court denied the preliminary injunction. 3. Comverse, 2006 U.S. Dist. LEXIS 76791, at *1. The agreement between the two parties contained a so-called broad arbitration provision that stated, inter alia, Any controversy or claim arising out of or related to this Agreement shall be submitted to binding arbitration in New York, New York in accordance with the then prevailing Rules of the American Arbitration Association. Comverse, 2006 U.S. Dist. LEXIS 76791, at *2 (citation omitted). 4. Value Added Reseller Agreement, 3.1 and Schedule B. 5. See Statement of Claim in the Matter of the Arbitration Between Comverse, Inc. against American Telecommunications, Inc., American Arbitration Association, Commercial Arbitration Tribunal, New York City Regional Office. Furthermore, the procedural history of the case can be found at Comverse, 2006 U.S. Dist. LEXIS 76791, at * Comverse, 2006 U.S. Dist. LEXIS 76791, at *3. 7. Comverse, 2006 U.S. Dist. LEXIS 76791, at *4. Endnotes 1. Comverse, Inc. v. Am. Telecomms., Inc., No. 06 Civ. 6825, 2006 U.S. Dist. LEXIS (S.D.N.Y. Oct ). For developments on lis pendens before New York courts, see Renova Holding, Ltd. 8. See Demanda de ATI contra Comverse Chile, Causa Rol No. 108/2006 (13 Sept. 2006), available at (last visited 27 Nov. 2006). 9. Comverse, 2006 U.S. Dist. LEXIS 76791, at *5.

9 MEALEY S International Arbitration Report Vol. 22, #2 February Comverse, 2006 U.S. Dist. LEXIS 76791, at * Comverse, 2006 U.S. Dist. LEXIS 76791, at *6-7 (citations omitted). 12. Comverse, 2006 U.S. Dist. LEXIS 76791, at * Much has been written about the circuit split on the standard for issuing a foreign anti-suit injunction, including, in particular, with respect to the role of comity. Only a brief overview will be provided here. See, e.g., Daniel Tan, Anti-Suit Injunctions and the Vexing Problem of Comity, 45 Va. J. Int l L. 283 (2005). 14. See LAIF X SPRL v. Axtel, S.A. De C.V., 390 F.3d at 194 (2d Cir. 2004); citing Paramedics Electromedicina Comercial, Ltda, 369 F.3d 645, 652 (2d Cir. 2004). 15. China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d at 33, (2d Cir. 1987). This standard was met in the most recent decision in the Pertamina saga. In re Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Pertamina), Case No. 21-MC-00098, 2006 U.S. Dist. LEXIS (S.D.N.Y. Dec. 8, 2006). In this latest episode, Pertamina failed to annul an unfavorable award in the place of arbitration (Switzerland) and also to upset the award in its home jurisdiction (Indonesia). By contrast, KBC obtained confirmation of the award in Texas and Canada. KBC then registered its judgment with the District Court for the Southern District of New York, which ordered the payment of the award plus interest. The district court also granted an anti-suit injunction prohibiting Pertamina from pursuing legal proceedings in the Cayman Islands (or any other jurisdiction) alleging fraud and seeking damages equivalent to the amount of the arbitration award plus interest. The court further deemed it proper to accompany the injunction with a judgment declaring certain funds the property of KBC, and that KBC would have no obligation to comply with any order interfering with its rights over the funds. 16. Stonington Partners, Inc. v. Lernout & Hauspie Speech Prods., 310 F.3d 118 (3d Cir. 2002). 17. Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349 (6th Cir. 1992). 18. Laker Airways Ltd. v. Pan Am. World Airways, 568 F. Supp. 811 (D.D.C. 1983). 19. See, e.g., Stonington Partners, 310 F.3d at 127; China Trade, 837 F.2d at Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 627 (5th Cir. 1996). 21. Seattle Totems Hockey Club, Inc. v. Nat l Hockey League, 652 F.2d 852, 855 (9th Cir. 1981). 22. Philips Med. Sys. Int l v. Bruetman, 8 F.3d 600, 605 (7th Cir. 1993); see also Affymax, Inc. v. Johnson & Johnson, 420 F. Supp. 2d 876, 883 (N.D. Ill. 2006) (citing the Philips Med. Sys. standard). 23. See, e.g., Seattle Totems, 652 F.2d at 856; Kaepa, 76 F.3d at Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11 (1st Cir. 2004). 25. Id. at Id. at Id. at The United States Supreme Court long-ago defined comity as 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. Hilton v. Guyot, 159 U.S. 113, 164 (1895). The concept is complex and elusive. Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 937 (D.D.C. 1984). See also Quaak, 361 F.3d at 18 ( Whatever definition is employed, it is pellucid that comity is not a matter of rigid obligation, but, rather, a protean concept of jurisdictional respect. And to complicate matters, comity, like beauty, sometimes is in the eye of the beholder. ). 29. See, e.g., Quaak, 361 F.3d at 17 ( We do not mean to suggest that courts employing the liberal approach do not give weight to considerations of international 7

10 Vol. 22, #2 February 2007 MEALEY S International Arbitration Report comity. For the most part, they do but they tend to define that interest in a relatively narrow manner and to assign it only modest weight. ). 30. [P]rinciples of comity counsel that injunctions restraining foreign litigation be used sparingly and granted only with care and great restraint. That is because an anti-suit injunction, though directed at the litigants, effectively restricts the jurisdiction of the court of a foreign sovereign. (Ibeto Petrochemical Inds., Ltd. v. M/T Beffen, 412 F. Supp. 2d 285 (S.D.N.Y. 2005) (quoting Axtel, 390 F.3d at 199)). Recently, the Ninth Circuit, applying the so-called liberal approach, explained that a federal district court abuses its discretion when it focuses on comity to the exclusion of other factors. Triton Container Int l Ltd. v. Di Gregorio Navegacao Ltda., 440 F.3d 1137, 1138 (9th Cir. 2006). 31. Axtel, 390 F.3d at Id. at Skadden, Arps, Slate, Meagher & Flom, with which the authors are associated, appeared as counsel for the prevailing party LAIF X. 34. Comverse, 2006 U.S. Dist. LEXIS 76791, at * Axtel, 390 F.3d at Paramedics Electromedicina, 369 F.3d 645 at China Trade and Dev. Corp., 837 F.2d 33, 37 (2d Cir. 1987). 38. Comverse, 2006 U.S. Dist. LEXIS 76791, at *9 (citations omitted). See also Pertamina, 2006 U.S. Dist. LEXIS * Comverse, 2006 U.S. Dist. LEXIS 76791, at *10 citing Register.com, Inc. v. Verio, Inc., 356 F.3d 393 (2d Cir. 2004). 40. Comverse, 2006 U.S. Dist. LEXIS 76791, at * Comverse, 2006 U.S. Dist. LEXIS 76791, at * Comverse, 2006 U.S. Dist. LEXIS 76791, at * Comverse, 2006 U.S. Dist. LEXIS at *10 (citing Jam. Shipping Co. v. Orient Shipping Rotterdam, B.V. (In re Millennium Seacarriers, Inc.), 458 F.3d 92 (2d Cir. 2006), remanded to Case No , 2006 U.S. Bankr. LEXIS 3289 (Bankr. S.D.N.Y. Nov. 28, 2006)). Upon reconsideration of the case, the Bankruptcy Court noted that in addition to not fulfilling the threshold factors for issuance of an anti-suit injunction, the movant, Jamaica Shipping Co., Ltd., had failed to make a showing of irreparable harm that would satisfy the issuance of a preliminary anti-suit injunction. Specifically, the court explained that the plaintiff was now simply a shell entity, the vessel that was the subject of the original litigation having been sold to an unaffiliated third party long after entry of the prior injunction Bankr. LEXIS 3289, at *4. Owing to the time that had passed since the commencement of litigation, there were no longer concerns of a ship on the high seas that ran the risk of interrupted operations. Since the urgency of the litigation had passed, plaintiff could no longer make a showing of irreparable harm. Id. at * In re Millennium Seacarriers, 458 F.3d at In re Millennium Seacarriers, 458 F.3d at Storm, LLC v. Telenor Mobile Comms., Case No. 06 Civ , 2006 U.S. Dist. LEXIS (S.D.N.Y. Dec. 15, 2006). Storm concerns parallel Ukrainian litigation and UNCITRAL arbitration proceedings in New York following the breakdown in relations between a Norwegian telecommunications company, Telenor Mobile Communications AS, and a Ukrainian company, Storm LLC, that had together formed a Ukrainian telecommunications venture, Kyivstar G.S.M. Telenor invoked the arbitration provision in the Shareholder Agreement to commence proceedings in New York. Meanwhile, a 49.9% owner of Storm, Alpren, commenced legal proceedings commenced in Ukraine, seeking invalidation of the Shareholder Agerement. The Ukrainian lower and appellate courts found that the arbitration provision in the Shareholder Agreement was invalid. The New York arbitrators, however, did not find the Ukrainian courts conclusions binding on them. Reserving the issue of whether the Shareholder Agreement in its entirety was valid, the arbitration panel concluded that the

11 MEALEY S International Arbitration Report Vol. 22, #2 February 2007 arbitration agreement was enforceable. Ukrainian litigation continued, with the plaintiff parties there directly challenging the findings of the arbitrators. Telenor then sought relief in the Southern District of New York by asking the court to compel Storm to arbitrate, and to issue an anti-suit injunction against Storm and its alleged alter ego companies from continuing litigation in Ukraine. 47. Storm, 2006 U.S. Dist. LEXIS 90978, at * Storm, 2006 U.S. Dist. LEXIS 90978, at * Storm, 2006 U.S. Dist. LEXIS 90978, at * F. Supp.2d 919, 925 n.5 (N.D. Iowa 2006). The district court s order granting a preliminary foreign anti-suit injunction is on appeal to the Eighth Circuit. See Goss Int l Corp. v. Tokyo Kikai Seisakusho, Ltd., No. 00-CV-35-LRR, 2006 U.S. Dist. LEXIS 55478, at *9-10 (N.D. Iowa Aug. 9, 2006). 51. Goss Int l Corp., 435 F. Supp.2d at 925 n E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984, 990 (9th Cir. 2006). 53. The District Court for the Southern District of Florida recently adopted the Ninth Circuit approach in Canon Latin Am., Inc. v. Lantech, No CIV-COOKE/BROWN, 2006 U.S. Dist. LEXIS 73312, at *8 n.4 (S.D. Fla. Sept. 27, 2006) F.3d at Id F.3d 118, 129 (3d Cir. 2002). On this point, see In re Mexico Money Transfer Litigation, where the District Court for the Northern District of Illinois stated that Rule 65 injunctions differ in purpose from anti-suit injunctions. Case Nos. 98 C 2407, 98 C 2408, 1999 U.S. Dist. LEXIS 17268, at *17 (N.D. Ill. Oct ). 57. Empresa Generadora de Electricidad ITABO v. Corp. Dominica de Empresas Elecs. Estatales, No. 05 Civ (RMB), 2005 U.S. Dist. LEXIS (S.D.N.Y. July 18, 2005). 58. Empresa, 2005 U.S. Dist. LEXIS 14712, at *16 (quoting Paramedics Electromedicina, 369 F.3d at 652). 59. The court noted that the movant had waited ten months after the foreign proceedings had been initiated, and over three months after making its own demand for arbitration before the arbitration panel, before seeking injunctive relief before the Southern District. Furthermore, any harm to the movant was speculative since the Dominican courts had not granted the relief sought by the opposing party or responded to the counterclaims filed by the movant. Empresa, 2005 U.S. Dist. LEXIS 14712, at * Empresa, 2005 U.S. Dist. LEXIS 14712, at *27. See also International Equity Investments, Inc. v. Opportunity Equity Partners, 441 F. Supp. 2d 552, (S.D.N.Y. 2006), where the order of the analysis is unclear. In that case, the district court first outlines the traditional preliminary injunction test, then considers to the defendants arguments under the anti-suit injunction, and finally returns to the irreparable harm inquiry. 61. Comverse, 2006 U.S. Dist. LEXIS 76791, at *14 (internal quotations and citations omitted). 62. Comverse, 2006 U.S. Dist. LEXIS 76791, at * Comverse, 2006 U.S. Dist. LEXIS 76791, at * The court stated, Regardless of whether the issuance of the Chilean Preliminary Injunction likely would have caused Converse imminent, irreparable harm, the Chilean Competition Tribunal s decision has nullified that potential cause of harm. Comverse, 2006 U.S. Dist. LEXIS 76791, at * See Comverse s Reply Memorandum of Law, supra n.67, at 8 ( [R]efusing to allow a party s solemn promise to be defeated by artful pleading in holding that public policy codified in antiwaiver provisions of the securities laws did not render forum selection and arbitration clauses unenforceable. ) (quoting Roby v. Corp. of Lloyd s, 996 F.2d 1353, 1360 (2d Cir. 1993).

12 Vol. 22, #2 February 2007 MEALEY S International Arbitration Report 66. See Memorandum of Law in Support of Comverse, Inc. s Second Application for Preliminary Injunction and Application for Temporary Restraining Order at 13. Indeed, Comverse noted, while the Competition Court s remedies are limited to its broad equitable powers and imposition of fines ATI could use a final judgment of the Competition Court to obtain monetary damages in a civil court in Chile. Id. 67. See Reply Memorandum of Law in Further Support of Comverse, Inc. s Second Application for Preliminary Injunction, Section II. 68. Shearson/ American Express, Inc. v. McMahon, 482 U.S. 220, 232 (1987). 69. See Comverse s Reply Memorandum of Law, supra n.67, Comverse stated, Further, the arbitrability of an antitrust claim is not defeated by the fact that such claim is a statutory antitrust claim based on foreign law at No. 94 Civ. 6795, 1994 WL (S.D.N.Y. Oct ). 71. Evans & Sutherland Computer Corp., 1994 WL593808, at *4 (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co,, 388 U.S. 395, 406 (1967)). Skadden, Arps, Slate, Meagher & Flom appeared on behalf of the successful plaintiff in this case. 72. See Memorandum of Law in Opposition to Comverse Inc. s Second Application at See Memorandum of Law in Opposition to Comverse Inc. s Second Application at 34 (citation omitted). n 10

13 Arbitration and the Fisc: NAFTA s Tax Veto by William W. (Rusty) Park Professor of Law at Boston University Vice President, London Court of International Arbitration Arbitrator, Claims Resolution Tribunal for Dormant Accounts in Switzerland A case of note reprinted from the May 2001 issue of Mealey's International Arbitration Report. Copyright 2001 Mealey Publications. All rights reserved. Reproduction strictly prohibited without written permission.

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