DBCP, China, and Forum Non Conveniens

Following up on a previous post and a recent post at China Law Blog, here is what I have found out about liability for MNCs in US courts. As CLB notes, the DBCP cases involving Latin American banana workers exposure to the nematacide DBCP, which causes infertility in men, and their suits against Dole and Dow, the user and the producer of DBCP, serve as the only examples of this type of litigation. The main result of these cases is reform of the forum non conveniens (FNC) doctrine from a doctrine that had been looking for the most convenient court (despite conveniens being Latin for adequate) to a doctrine that is truly trying to determine the adequacy and availability of other forum for litigation than the US court the case was brought in. Forum non conveniens is the dismissal of the suit, sometimes accompanied by stipulations that the defendant will not challenge the suit's validity in the new forum. A brief history of the DBCP litigation:

The first case was brought under Texas law in Alfaro v. Dow in 1990. Texas was one of the only states with a statute abolishing FNC for personal injuries or wrongful death suits. After the Texas Supreme Court ruled that the statute did indeed abolish FNC under these suits, the plaintiffs settled. The two consequences of this suit were that 1) Texas amended their law to allow FNC in state courts, and 2) Dow, Dole and the other defendants got a lot trickier.

Federal courts apply FNC the most liberally, and Dow and Dole decided to get all of their suits into the federal courts by impleading Dead Sea Bromine Company. At one point Dead Sea had been wholly owned by a holding company which was mostly held by a holding company which was mostly owned by the State of Israel. Using the Foreign Sovereign Immunities Act of 1976 (FSIA), Dead Sea was determined to be an instrumentality of Israel and Dead Sea was allowed to remove the whole suit to federal court where the defendants were able to get an easy FNC dismissal. This would have potentially huge implications for suits involving Chinese companies because there are often SOEs involved and any SOE could invoke foreign sovereign immunity. This all changed with a US Supreme Court decision in 2003.

In Dole v. Patrickson, the Supreme Court was asked to decide what the word "ownership" meant in the FSIA statute. Previous holdings at the Circuit Court level had held that even a complicated share structure such as the one between Dead Sea and Israel constituted ownership. The Supreme Court held that Congress' intention was to use the word ownership as in basic corporate law, and ownership under the FSIA for determining whether foreign sovereign immunity could be invoked is to be interpreted as direct ownership of a company's shares at the time the suit is commenced. In addition, any element of control over the company does not matter because ownership and control are distinct.

A commentator has written that Patrickson and Martinez v. Dow are causing courts to look at FNC in a whole new light. Martinez is one of the first cases to critically examine the adequacy and availability of the alternative forums that FNC posits on the basis for dismissal. In Martinez the defendants said that Costa Rica, Honduras or the Philippines would serve as a more appropriate forum than the US courts because of the public and personal interests such as wasting juries' time, American courts as less adequate for dealing with questions of foreign law, and all of the relevant evidence being in foreign countries. The judge evaluated each of those countries court systems to see if they were actually adequate and appropriate. The judge found the following (with some points on China, following):

• Costa Rica used the civil law which does not have the common law doctrine of FNC which means the suit could probably not be brought in Costa Rica after being dismissed in the US.
  
• China has the civil law system. Although, Chinese judges have been convinced to find FNC in certain cases.

• Based on a State Department report, Honduras' civil law system was inefficient, opaque, infected with powerful special interests, and poorly staffed. And, the Martinez court held that the plaintiffs would be treated unfairly and deprived of adequate remedies.
  
• Wait for it...

• Based on a State Department report for the Philippines, the Court noted that their legal system was corrupt and characterized by personal ties, poorly paid judges susceptible to corruption and undue influence, overworked staff, long delay, a general failure to provide due process and equal justices, a history of bribing witnesses, and improper relationships between judges, parties and litigants. The court held that the plaintiffs would be deprived of remedies and/or treated unfairly in the Philippines court system.
• If a State Department report is adequate to show the inadequacy of a country's courts, then the chance of China being deemed adequate and available enough for FNC dismissal is small. China's judicial system may be improving, but here is a summary of the State Department's report on China issued on March 6, 2007:
• "Legal reforms continued to stall, as the party and state exercised strict political control of courts and judges, and maintained closed trials and administrative detention."
• "A lack of due process and new restrictions on lawyers further limited progress toward rule of law."
• "Serious social conditions that affected human rights included endemic corruption."
• And, some good: "The government continued to pursue some criminal and judicial reforms."

Federal and state courts, as evidenced by the recent verdict in Los Angeles, are following the Martinez type analysis of "available" and "adequate" for FNC dismissal. Until a case is appealed to the US Supreme Court for review of what the words "adequate" and "available" mean, then expect more inquiries into the state of the judicial system in foreign countries. This should be good for plaintiffs and bad for defendants. As for China, given the State Department's report and the current general public opinion of China in the US, I would expect that a US court would find it hard to dismiss a case for the reason that a Chinese court is more adequate and available than a US court.