Civil Law and Procedure / Derecho Civil y Procesal Civil

Bend It Like Beckham: Forum Manipulation and Abuse of the

Foreign Sovereign Immunities Act by Multinational Corporations

Prepared for the Inter-American Bar Association/Inter American Federation of Lawyers Annual Conference 2004—Madrid

Presented June 24, 2004

Scott Hendler[1]

The Hendler Law Firm, P.C.

816 Congress Avenue

Suite 1230

Austin, Texas 78701 USA

            Invoking the same spin and illusion of reality as David Beckham bending a soccer ball towards the goal, for nearly ten years a handful of multinational corporations have sought to manipulate the legal process to avoid being held accountable by workers injured by the corporations’ misconduct.

The litigation involves claims by farm workers involuntarily sterilized as a result of exposure to a nematocide known dibromochloropropane (DBCP).  Thousands of men were exposed to this known toxic chemical in the course of their work on banana plantations in various countries of Central America.  Many of these individuals have filed lawsuits in the United States against the companies that manufactured, sold, or used DBCP.  Due to the delay tactics of these companies, however, the vast majority of these injured workers are still waiting for their day in court.[2]

I.  Historical Background of DBCP Litigation

Defendants Dow Chemical Company, Shell Oil Company, and Occidental Chemical Corporation manufactured DBCP and DBCP-containing products in the 1960s and 1970s. The manufacturers sold it to Standard Fruit Company, Dole Food Company, Inc., Chiquita Brands, Inc., Del Monte Tropical Fruit Company, and related corporate entities for use on their banana plantations on which plaintiffs lived and worked throughout the world.

A.  The Corporations Knew the Dangers of DBCP since the 1950s

            Evidence uncovered during the course of this litigation demonstrated that Dow and Shell knew of the hazards of DBCP in the earliest stages of its development, as far back as the 1950s, yet misled the United States Food and Drug Administration to gain a license to market the chemical.  In particular, evidence produced in the litigation suggests that a joint Dow-Shell licensing application intentionally omitted test data that showed DBCP caused sterility in animals.  The companies then neglected to issue warnings about the risks for human use.  Information on sterility and the need for warnings was deleted from earlier drafts.

In 1977, a number of workers exposed to DBCP at Occidental’s plant in Lathrop, California discovered they were sterile.  Within weeks, the U.S. Environmental Protection Agency suspended the use of DBCP for almost all domestic agricultural applications. Despite this regulatory action in the United States, Standard Fruit Company insisted upon a continued supply of DBCP for use on its plantations in foreign countries and even threatened to sue Dow, its supplier, for breach of contract if it ceased selling DBCP.  Once Standard agreed to indemnify Dow for injuries to third parties, Dow agreed to resume sales of this known toxin.

During hearings of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, Senator Patrick Leahy summarized the historical record of DBCP development and use:

[I]ndustry studies…were kept secret from domestic chemical company employees and from agricultural workers using DBCP in the field. Now tragically, twenty years later, the sterilization that had been predicted by laboratory tests became a reality—increasing numbers of workers in the manufacturing plants and the banana fields found they could not have children.  The EPA finally banned DBCP from nearly all domestic uses, but the companies then dumped their unused stocks overseas where it continued to be used. As a result, more banana workers in Costa Rica were sterilized . . . The tale of DBCP is an appalling one. [3]

B.  Texas Supreme Court Rejects Doctrine of Forum Non Conveniens

In 1984, a group of Costa Rican workers injured by continued exposure to DBCP sued Dow and Shell in Texas state court.  After unsuccessful attempts to remove the Alfaro case to the federal court system, Defendants filed a motion to dismiss relying on the common law doctrine of forum non conveniens.  Under this doctrine, a court with proper jurisdiction of a case nonetheless may still decide that a “more convenient” legal forum exists, but only if it determines that the alternative forum is legally available and will provide an adequate judicial remedy.  After making this initial determination, the court must then analyze a variety of factors designed to balance the interests of the private litigants with public policy concerns.  If this second level analysis provides strong support that the alternative forum is more convenient, the court then, in its discretion, may order the plaintiff to refile the case in the alternative forum and thereby override the plaintiff’s chosen forum even though it was legally proper. 

The doctrine of forum non conveniens has become popular among U.S. corporate defendants sued in the United States by foreign nationals for injuries that occurred in the foreign nationals’ home countries, regardless of whether the negligent conduct causing the injury occurred in the United States, as is often the case, or even whether the foreign forum is truly “more convenient.”  Not surprisingly, the key consideration is money.  The amount of monetary damages awarded and available in foreign legal systems often pales in comparison to the damages available through the United States court system, which is much more developed to manage complex litigation involving thousands of victims.  Because such litigation is more readily manageable, equitable compensation is more realistic in the United States.  The contrast in the availability and scope of monetary remedies is particularly stark between the remedies available in the United States to those available in developing nations in Central and South America.  

After five years of litigation in Texas over this very issue, the Texas Supreme Court held in a seminal case that Texas did not recognize the doctrine of forum non conveniens in wrongful death and personal injury actions. Dow Chemical Co. v. Alfaro, 786 S.W.2d 674 (Tex. 1990), cert. denied, 498 U.S. 1024 (1991).  Shortly after Alfaro was decided in favor of the plaintiffs’ right to sue in Texas, Dow and Shell settled the claims against them rather than risk litigation on the merits in Texas state court.[4]  But there were thousands more victims of this corporate misconduct who decided to seek accountability for their injuries.

II.  Defendants’ Attempts to Use Federal Forum Non Conveniens Law to Avoid Liability

Faced with the prospect of having to defend the claims of thousands of DBCP victims in Texas state court after the Alfaro decision, Defendants devised a strategy to access federal court jurisdiction, where the defensive doctrine of foreign non conveniens was still available.  Because their initial attempt to remove the cases to federal court was denied due to the subject matter and the citizenship of the parties, Defendants resorted to the exploitation and manipulation of the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1603, a federal law in the United States whose primary purpose is to respect the interests of foreign sovereigns based on the international legal concept of comity among nations.  Rather than invoking this doctrine as intended, Defendants turned the concept of comity on its ear in a transparent attempt to manipulate the Plaintiffs’ choice of forum. Unfortunately for the injured workers, the Defendants were initially successful in their procedural gambit and were able to transfer the cases into the United States federal courts and invoke forum non conveniens to obtain a dismissal of the cases.

A.  The Collusive Joinder of the Dead Sea Companies in Texas

1.  An Elaborate Maneuver to Join Dead Sea Companies, Clearly Orchestrated by Defendant Corporations

            To avoid the state court jurisdiction which had been properly asserted by the Plaintiffs, the Defendants employed a well-scripted strategy to coordinate filings in different cities and court systems within a period of less than an hour.  Haste was needed to ensure that any effort by Plaintiffs to return the case to state court was frustrated, because “undoing” a removal to federal court would be more difficult once the case was already transferred.  The following sequence of events transpired to effectuate the removal:

·        At 2:47 p.m. on March 15, 1994, Del Monte, a defendant in a Texas DBCP case, filed a third-party petition against Dead Sea Bromine Co., Ltd. and related entities.  Dead Sea Bromine had never been identified in any previous point in the litigation, although the case had been on file for over a year.

·        At 3:20 p.m., the Dead Sea Companies filed their Notice of Removal in United States District Court located some 64 kilometers from the state court where the initial action was taken, thereby transferring the case from the state court of Texas to the federal court system.

            Within the course of those 33 minutes between the third-party petition and the notice of removal, therefore, Dead Sea Bromine received the third-party petition, retained counsel, obtained copies of the state court file, prepared a three-inch thick notice of removal containing hundreds of pages, filed it, and gave the state court notice that the case had been removed.[5]  It is inconceivable that these events could have occurred in such a short time frame without prior knowledge and collusion between the defendant companies and the Dead Sea entities.  Needless to say, the defendants and Dead Sea entities choreographed the entire maneuver to prevent the state court from taking any action that might prohibit joinder of Dead Sea in the first place.  This collusive action, put into effect in less than one hour, set the stage for the next nine years of litigation.

2.  There Was No Legal Basis for a Claim against Dead Sea Bromine

            One key aspect of the removal to federal court is essential to understand:  defendants’ claims against Dead Sea Bromine were a transparent sham with no reasonable basis in law or fact for any claim by any defendant against Dead Sea Bromine.  First, Dead Sea Bromine was a very minor manufacturer of DBCP.  According to an executive of the Standard Fruit Company, which employed most of the plaintiffs in this case, Standard bought only a negligible amount of DBCP from Dead Sea in the twelve years Standard used the chemical in Central America.  Moreover, as Mr. Cassity testified, Israeli DBCP came from another entity named the “Dead Sea Chemical Company” – not Dead Sea Bromine or any other entity in the chain of ownership inaccurately named by Defendants.

B.  Defendants’ Motive for Removal was Improper

Why, then, did Dead Sea Bromine remove this case at defendants’ urging, and with their contrivance? There is only one reason: in federal court, defendants would have access to the common law legal doctrine of forum non conveniens to seek a dismissal of the cases and avoid a hearing on the merits, but in state court they would be forced to defend these cases on the merits and before a jury.

The Texas Supreme Court, in the Alfaro case discussed supra, had held that Texas law did not recognize the doctrine of forum non conveniens.  The DBCP case, under Texas law, was a garden-variety state law personal injury case and so the companies were desperate to remove it to federal court.  Lacking any legitimate basis for removal, the defendants pinned their strategy on a baseless third-party claim against Dead Sea Bromine, and made the preposterous contention that a minor Israeli maker of DBCP could somehow be solely responsible for plaintiffs' injuries such as to be liable to defendants for complete indemnity.  This contention wholly ignored the fact that it was the defendants, and not any of the Dead Sea entities, that lied to the FDA and entered into an indemnity agreement to enable it to continue using a known, banned poison in underdeveloped countries.

Based upon a tortured interpretation of the FSIA, Dead Sea Bromine and the other defendants colluded to access the federal courts solely to gain a forum non conveniens defense.  One fact is important to understand about this litigation:  the defendants desperately do not want to try these cases before a jury; they want them dismissed on forum non conveniens grounds to the courts of developing countries.[6]

Initially, the defendants’ strategy succeeded in accomplishing their ends in Texas, as they found a federal court that would eventually grant them the coveted forum non conveniens dismissal they sought.  The dismissal was later affirmed on appeal by the United States Court of Appeals for the Fifth Circuit, in Delgado, et al., v. Shell Oil Company, et al., 231 F.3d 165 (2000).[7] 

B.  Collusive Joinder of Dead Sea Companies in Hawaii

Meanwhile, another group of Central and South American banana workers brought an identical legal action in Hawaii, at the time the home state of Dole Food Company, under the name of the lead plaintiff, Dennis Gerardo Patrickson.  The Patrickson case was originally filed in state court in Hawaii in 1997 against Dole Food Company, Dow Chemical Company, Shell Oil Company, Occidental Petroleum Company, Chiquita, Inc. and Del Monte Fresh Fruit, along with a number of their alter egos, subsidiaries and affiliate companies.

The plaintiffs in the action were banana plantation workers from Costa Rica, Ecuador, Guatemala and Panama who claimed that their exposure to DBCP, an agricultural chemical used to kill nematodes that attack the roots of banana plants, caused them to become sterile. To manufacture an otherwise non-existent basis to transfer the case to federal court, the Dole Food Company filed a third-party action against Dead Sea Bromine Company, Ltd. and Bromine Compounds (collectively the Dead Sea Companies), subsidiaries of an Israeli chemical company whose majority share owner had once been the Israeli Government.

The Dead Sea Companies removed under a theory claiming to qualify as an agency or instrumentality of a foreign state, in this case Israel, as that term of art is defined in the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §1603. This modus operandi followed the familiar script that had been employed by these multinational corporations in Texas: (1) banana plantation workers file suit against multinationals responsible for their injuries; (2) the multinationals, fearing accountability in state courts inclined to allow matters to proceed to hearings on the merits, bring the Dead Sea companies into the lawsuit via a third party action (a process by which a defendant sued in a case can turn around and sue a third party for its liability); (3) as part of a previously agreed upon course of action, the Dead Sea entities claim they are instrumentalities of the Israeli government as defined by federal law; and (4) Dead Sea then transfers the case to United States federal court. Once the case is removed, it is effectively stopped from progressing further and it is defendants’ belief that the likelihood of a dismissal of the action on forum non conveniens grounds would increase.

Curiously, the government of Israel never weighed in on this issue, nor did it express any interest in Dead Sea’s claim of foreign sovereign status, even when Dead Sea, remarkably, waived any foreign sovereign immunity in the case!  The case fell to the same fate as the case in Texas, encountering a federal judge all too willing to dismiss the case on forum non conveniens grounds.  The plaintiffs appealed the dismissal to the United States Court of Appeals for the Ninth Circuit, which reversed the lower court’s determination that it could exercise jurisdiction in the case, and vacated its ruling on forum non conveniens.  The Dead Sea entities and Dole then petitioned the United States Supreme Court to decide the issue.  See Patrickson v. Dole Food Co., et al., 251 F.3d 795 (9^th Cir. 2001).

III.  The Patrickson case – The U.S. Supreme Court Affirms the Ninth Circuit Court of Appeals, Ruling in Plaintiffs’ Favor

A.  The Purpose and Proper Application of the Foreign Sovereign Immunities Act

In April 2003, the United States Supreme Court finally decided the question of law that had been so hotly contested in the Courts of the United States by seven multinational corporations and thousands of banana plantation workers from over a dozen different countries for nearly a decade.  That question centered on the proper interpretation and application of the Foreign Sovereign Immunities Act, which governs the circumstances under which foreign sovereigns and their agencies and instrumentalities are entitled to immunity from suit and jurisdiction in United States courts.

As the Supreme Court explained, any civil action brought in a sate court against a foreign state, defined in 28 U.S.C. § 1603(a) may be removed by the foreign state to the federal district court of the United States for the district and division where such action is pending.  The purpose of the Doctrine of Foreign Sovereign Immunity, and the reason that Congress codified this doctrine in Section 1603, was to protect foreign states and their instrumentalities from the inconvenience of suit in a myriad of different state court systems as a gesture of comity between the United States and other sovereigns.[8]

            Although foreign states may invoke certain rights and immunities in litigation under the FSIA,[9] some of the Act’s provisions may also be invoked by a corporate entity that is not an “instrumentality” of a foreign state as defined by the Act.[10]  The Dead Sea corporate entities in this case claimed status under this provision to invoke the Act’s provisions.  Under the FSIA, a foreign state is defined to include an “agency or instrumentality of a foreign state,” which in turn is defined as any entity:

            (1) which is a separate legal person, corporate or otherwise,

(2) which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof, and

(3) which is neither a citizen of a state of the United States… nor created under the laws of any third country.[11]

            Two core issues were before the Court.  First was the question of the Foreign Sovereign Immunity Act's applicability to a subsidiary of an instrumentality. In other words, is the subsidiary of an agency or instrumentality, itself an agency or instrumentality?  The Ninth Circuit Court of Appeals, which heard the appeal from the Hawaii cases, held it was not, taking the opposite view of the Fifth Circuit Court of Appeals, which heard the Texas appeal; the resulting divergence in holdings created a split in the circuits, inviting resolution by the Supreme Court.

            The second issue before the Court was: even if the entity which is the subject of the litigation falls within the sphere of protection under the Act during the time period the conduct at issue occurred, is the status of the entity at the time the conduct occurred or at the time suit is filed determinative of whether the entity qualifies for the protections of the FSIA?

B.  Applicability of the FSIA to a Subsidiary of an Instrumentality, Where the Foreign State Does Not Directly Own the Subsidiary

1.  Dead Sea Companies Were Not Owned by a Foreign Sovereign

The United States Supreme Court held that the Dead Sea Companies were not entitled to invoke the protections of the FSIA, contrary to the conclusion reached by the United States Court of Appeals sitting in Texas. The Court resolved the question of the FSIA’s applicability by holding that a subsidiary of an “instrumentality” is not itself an “instrumentality,” and therefore not entitled to the protections such status affords under the FSIA. Dole Food Co. v. Patrickson, 538 U.S. 468, 473-74 (2003).

The Court reasoned that the state of Israel never had direct ownership of shares in either of the Dead Sea Companies at any time. Rather, these companies were, at various times, separated from the State of Israel by one or more intermediate corporate tiers.  In this case, one corporation, the majority of whose shares were held by the Israeli government, in turn held the majority of shares of another corporation which, in turn, held the majority of shares of the Dead Sea companies brought into the lawsuit, the third- and fourth-tier corporations in the ownership chain. The Dead Sea Companies, as indirect subsidiaries of a corporate entity owned by the State of Israel, were therefore not instrumentalities of Israel as that term is used in the FSIA.  The Supreme Court held unequivocally that only direct ownership of a majority of shares by the foreign state satisfies the statutory requirement of the Act.  Patrickson, 538 U.S. at 473.

            In analyzing the applicability of the Act, the Court first noted that Section 1603(b)(2) speaks of ownership. Rejecting the Dead Sea Companies’ argument to ignore corporate formalities and use the colloquial sense of the term ownership, the Supreme Court concluded that in issues of corporate law, structure matters. The Court pointed out that it was evident from the Act’s text that Congress was aware of settled principles of corporate law and drafted the legislation within that context. The language of the statue itself (Section 1603 (b)) refers to ownership of “shares” illustrating that the authors of the legislation intended the language of the statute to turn on formal principles of corporate ownership. As a result, the Supreme Court concluded that an entity must comply with formal principles of corporate ownership before it may qualify as an instrumentality under the statutory language of the Foreign Sovereign Immunities Act.

            The Court based this conclusion on a basic tenet of American corporate law that views the corporation and its shareholders as distinct entities.[12]  The Court explained that an individual shareholder of the corporation, simply by virtue of his ownership of shares, does not own the corporation’s assets and therefore does not own subsidiary corporations, which are themselves assets.[13] Applying these principles, the Supreme Court concluded that Israel did not own a majority of shares in the Dead Sea Companies, and therefore Dead Sea could not meet the test necessary to qualify for foreign sovereign immunity status and the protections of the Act.

            The Act’s definition of “instrumentality” refers to a foreign state’s majority ownership of “shares or other ownership interests”.[14]  The Dead Sea Companies argued that the Court should read the statutory language “other ownership interests” to include a state’s practical “interest” in its instrumentalities’ subsidiary, even though it is simply another asset. The Court rejected this view, holding the words “other ownership interest” when following the word “shares” is to be interpreted to refer to a type of interest other than ownership of stock, because foreign governments are involved who may operate under different economic systems.   Patrickson, 538 U.S. at 476.

            The Dead Sea entities also argued that because the State of Israel exercised considerable “control” over their operations, notwithstanding Israel’s indirect relationship to the companies, the companies qualified as agencies or instrumentalities. The Dead Sea Companies further insisted that in determining “instrumentality” status under the Act, control should be substituted for an ownership interest. The Supreme Court rejected this argument outright, holding that control and ownership are distinct concepts. The Court emphatically stated that majority ownership by a foreign state, not control, is the benchmark by which to determine agency or instrumentality status.  Id. at 474.  The Court concluded that a corporation is an instrumentality of a foreign state under the Act only if the foreign state itself owns a majority of the shares of the corporation involved in the litigation.

B.  The Time of Suit Determines Whether An Entity Can Invoke FSIA Protections

The second basis of the Court’s ruling determined whether the instrumentality status was relevant as of the time the conduct causing the injury occurred or the time suit was filed to seek compensation for the injury.  The Court considered the statutory language and quickly concluded that it was expressed in the present tense, meaning that Congress designed the FSIA to protect foreign states based on when suit was filed, not when the conduct that gave rise to the suit occurred. This is an important distinction.

1.  Supreme Court Relied on the Plain Language of the Statute

The Court pointed out that the plain language of the statute, including the tense in which it is written is instructive, and therefore declined to impute a meaning that was clearly not intended by the drafters of the law.  Id. at 478.  This was because foreign sovereign immunity is meant to give foreign states and their agencies or instrumentalities some protection from the inconvenience of suit as a gesture of comity between the United States and other sovereigns, and to provide a certain degree of consistency, predictability, and reliability to foreign governments and their instrumentalities engaging in commerce in the United States. See Verlinden B. V. v. Central Bank of Nigeria, 461 U.S. 480 (1983)

2.  Israel Had No Connection to the Dead Sea Entities at the Time the Lawsuit Was Filed

As to the second question, the Court held that regardless of whether the Dead Sea companies did in fact qualify as instrumentalities under the Act when Israel owned the majority of shares of the corporate parent, there was no dispute that the government of Israel had severed its ties to the parent corporations before suit was filed.   Patrickson, 538 U.S. at 478.  Dead Sea could not invoke the protections and privileges the Act confers upon foreign sovereigns involved in litigation in the United States courts because the Dead Sea entities joined in the lawsuit were not foreign sovereigns when Plaintiffs filed suit. Id., at 479-80. 

            Accordingly, the Supreme Court rejected the arguments of the Defendants on two different grounds.  First, the Court held that the foreign state must itself own the majority of shares of a corporation for the corporation to be deemed an instrumentality of the foreign state under the provisions of the FSIA. Second, instrumentality status for purposes of the Act is determined at the time of the filing of the complaint.  The Supreme Court rejected Defendants’ transparent attempt to manufacture federal jurisdiction by colluding with the Dead Sea entities on two grounds.

IV.  The Current Status of DBCP Litigation around the World

A.  Pending Cases in the United States

            As a result of the Patrickson decision, the DBCP cases in Texas, Hawaii and Louisiana have been remanded, or transferred back, to the respective state courts where they were originally filed.  In Texas, the cases are not subject to the doctrine of forum non conveniens – based on the Texas Supreme Court’s Alfaro decision – and are expected to proceed to trial in Spring 2005.  The latest development occurred on Monday, June 21, 2004, the day before this paper was presented.  As a belated result of Patrickson, a federal court in Houston finally ordered the remand of the omnibus case known as Delgado to the appropriate Texas state court.  Delgado, et al., v. Shell Oil Co., et al., 322 F.Supp.2d 798 (S.D. Tex. 2004).  This may have a significant impact on the Defendants’ perspective on the merits of trying to reach a comprehensive resolution of the claims from around the world.

In Louisiana, ironically, shortly after the federal court in New Orleans rejected the defendants’ bid to transfer several hundred cases back to the Plaintiffs’ home countries, the Supreme Court issued its decision in Patrickson stripping the federal courts of their jurisdiction and forcing this court to remand the case to Louisiana state court.  It is unclear whether the state court will adopt the Supreme Court’s decision rejecting the request to dismiss under the doctrine of forum non conveniens.

The DBCP cases pending in Hawaii have been assigned to state judges and the parties are preparing to activate the cases.  The first issue likely to be addressed by the state court is the Defendants’ almost certain request to transfer the cases to the Plaintiffs’ home countries in Central America.

B.  New Developments in Central America 

A very interesting development has occurred in Nicaragua.  This country recently adopted Law 364, a law intended to address the refusal by United States’ courts to recognize the rights of DBCP victims from Civil Code countries to select defendants’ domicile as the forum to bring a legal action.  This law has produced several significant default judgments – with amounts over one hundred million dollars each – against the corporate defendants,  but these default judgments have been harshly criticized by both the defendants and at least one United States federal court, which refused to enforce one such judgment.  Nevertheless, the Supreme Court of Nicaragua has upheld Law 364.  Given the protracted history of litigation in the United States, laws of this nature are perhaps the most effective means to address the failure of the U.S. courts to recognize Civil Code legal doctrines that give plaintiffs the right to sue in a defendant’s domicile. More judgments from Nicaragua are expected and may help to drive a comprehensive resolution of the litigation. 

Not surprisingly, in the case of Nicaragua, the Defendants have pleaded with the Nicaraguan courts to transfer the cases to the United States so they can avoid the punitive judgments the Nicaraguan courts have issued thus far.  This underscores the fact that the Defendants’ forum non conveniens motions in the United States courts have little to do with convenience of the forum and everything to do with forum shopping to influence the amount of the judgment that might be awarded against them and whether the workers injured by DBCP will be able to recover for their injuries. How this will eventually play out remains to be seen and may take several more years before the litigation is fully resolved.