During the 2006-2007 ISBA year, the International and Immigration Law Section Council was able to produce eight separate issues reflecting the wide range of interests of the Section membership. We wish to thank all who contributed one or more articles whether or not they were Section Council Members, Section Members or other interested parties and supporters.
The list below emphasizes the number of authors who contributed and the range of topics.
If you are not currently a Member of the Illinois State Bar Association’s International and Immigration Law Section Council, please visit the ISBA Web site (isba.org) and become a Member to insure that you continue receiving the newsletters on a timely basis.
The articles this past year were:
Issue #1
• “Chair’s Column” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “IBA Comes to Chicago”
• “Selling Food in the European Union” – By Lynne R. Ostfeld
• “What is an International Law Practice?” – By Lewis F. Matuszewich
• “Summary of Commercial Agency/Distributorship Law in Turkey” – By Howard L. Stovall
• “Conference Series: An Informed Discussion of Financial Access for Immigrants-Part III” – By Steven W. Kuehl
Issue #2
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Investor-State Disputes” – By Mark E. Wojcik
• “Foreign Law Resources: Government Gazettes Online” – By Caitlyn McEvoy
• “A World of International Law Coming to Chicago and Beyond” – By Violeta Balan
• “Removal Orders Redux: An Analysis of the Immigrant Deportation Reinstatement Statute” – By Pat Kinnally
• “Algeria-Retention of Intermediaries for Sales to the Public Sector” – By Michael L. Coleman and Celine Van Zeebroeck
• “Protecting ‘Works of the Human Spirit’ Worldwide” – By Caitlyn McEvoy
Issue #3
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Recent Developments with Respect to First Amendments Rights in the Immigration Context” – By Cindy G. Buys
• “United States Treaty and Nationality-Based Work Options” – By Scott D. Pollock
• “The Chicago Council on Foreign Relations Changes its Name” – By Violeta Balan
• “Law Library of Congress: Global Legal Monitor” – By Caitlyn McEvoy
• “Building Bridges: An Egypt-U.S. Free Trade Agreement, Ahmed Galal and Robert Z. Lawrence, Editors (Brookings Institution Press: 1998)” – By Christopher Scott Maravilla
• “Agriculture Liens: A Comparison of Chinese Secured Transactions Law and UCC Article 9” – By Liu Xin
• “China Watch” – By John T. Baun
Item #4
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Immigration Consultation Corner #4-The B-2 Overstay Dilemma: Issue Spotting and Wise Counsel When There are Limited Options” – By Scott D. Pollock
• “One Plus One Equals Three or in an Immigration Context Applying for a Waiver” – By Y. Judd Azulay
• “Oil and Gas Investments in Algeria-A Legal and Tax Primer From an Algerian Perspective” – By Michael L. Coleman and Celine Van Zeebroeck
• “Immigrations Strategies: Getting the U.S. Off the Dime” – By John T. Baun
• “Suppression of Evidence is Not a Remedy for Violating the VCCR” – By Jason Gunnell
• “Illinois International Business Calendar”
Issue #5
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Now is the Time for Employers to Prepare to Beat the Fiscal Year 2008 H-1B Cap” – By Scott D. Pollock and Fatima G. Mohyuddin
• “Real Estate Investment in Romania” – By Sorina Tira
• “Bulgaria’s Accession to the EU-What Does This Mean for You and Your Clients?” – By Peter Petrov
• “The Secret World of Human Trafficking”
• “Pro Bono Recognition” – Provided By The National Immigrant Justice Center
• “Pro Bono Opportunities” – Provided By The National Immigrant Justice Center
Issue #6
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Attorneys from Vietnam”
• “Admonitions in the Criminal Trial Court: Waiver of Counsel, Jury Demand, and Noncitizen Guilty Pleas” – By Patrick M. Kinnally
• “State of the World-Center of Opportunity” – By Richard Paullin
• “World Intellectual Property Organization Proposes New Initiative Regarding Trademarks for Drug Names” – By Alpana Sahu and Pradip Sahu
• “FSIA Applied Retroactively and Subsequent Commercial Use of Expropriated Property Dies Not Qualify for the ‘Commercial Exception’” – By Paul J. Carrier
• “Book Drive for Immigration Detainees” – By Cindy G. Buys
• “U.S. Department of Commerce Upcoming International Trade Events“
Issue #7
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Judges Should Notify Foreign Nationals” – By Cindy G. Buys
• “CLE Covers Immigration Issues for Family Lawyers” – By Tahani Afaneh
• “The Transatlantic Partnership and its Implications to the Economics of the United States and the European Union” – By Oana Pantilimon
• “Choosing (and Using) a Mental Health Expert Witness for Immigration Cases” – By Phyllis Gould
• “Pro Bono Assistance Needed” – By Jefferson Mok
Issue #8
• “Message from the Chair” – By Shannon M. Jackson
• “Editor’s Comments” – By Lewis F. Matuszewich
• “Hague Securities Convention” – By John Baun
• “Abuse of the Legal Process in the Khodorkovsky Case” – By Julia Bikbova
• “Keeping Company Secrets Secure: Where Does the Economic Espionage Act Stand After its First 10 Years” – By Andrew Pavlinski
Lewis F. Matuszewich
Matuszewich, Kelly & McKeever, LLP
Telephone: (312) 726-8787
Facsimile: (773) 279-8872
E-MAIL: lfmatuszewich@mkm-law.com
The Illinois State Bar Association’s Annual Meeting always marks the changing of the structure of each Section Council.
First, I would like to extend my congratulations to Shannon M. Jackson for her excellent work as Chair of the Section Council this past year. She supported the CLE programs of the Section Council and reached out to encourage other Section Councils to include immigration or international topics on their agenda. She contributed to each issue of The Globe and recruited other authors. Her work was outstanding and I look forward to her continued support this coming year, as she offered to help with the CLE programs.
Pradip Sahu, Secretary of the Section Council last year and newly appointed Vice-Chair, has accepted the responsibility to help coordinate all CLE programs for this Section. Three different programs are being discussed and will be described in future issues of The Globe.
Cindy Buys is the newly appointed Secretary and has agreed to also serve as Legislative Liaison for this coming year.
Mark Wojcik, former Section Council Chair, is now our Board Liaison and Tom Speedie has been re-appointed as our Staff Liaison.
Re-appointed Members include Violeta Balan who has agreed both to serve as Assistant Editor of The Globe and to work on a CLE project; Scott Gertz who is working on a CLE program; and David Austin who is both working on a CLE program and evaluating ways that our Section Council can become more active in the ISBA Mentoring Program.
We welcome back Lynne Ostfeld after a year’s absence and re-appointed members Y. Judd Azulay, Scott Pollock, Steve Komie and Mary T. Scott. We welcome new member Gwendolyn M. Osmer who has agreed to work with Pradip Sahu as our Web site liaison and new member Farrah N. Qazi.
We will specifically miss Pat Kinnally after many years of active service, but we will not let go of him completely. We do expect Pat to participate in CLE programs, contribute articles to The Globe and help make presentations at the law schools.
We look forward to a productive and active year. It would be extremely helpful if each Member of the Section, and everyone else that reads this newsletter, would make sure that their membership in the Section is up to date and during the year help us recruit one additional Section Member.
Lewis F. Matuszewich
Matuszewich, Kelly & McKeever, LLP
Telephone: (312) 726-8787
Facsimile: (773) 279-8872
E-MAIL: lfmatuszewich@mkm-law.com
As the world struggles to deal effectively with the genocide in Darfur that has claimed an estimated 200,000 lives and displaced 2.5 million people, and the United States government seeks its own calculated response, several states have begun taking their own measures to protest the conflict and humanitarian disaster. Even though the federal government has passed several laws on Sudan, the past two years have witnessed a widespread campaign to divest from Sudan and companies that do business with or in Sudan, which has taken root in state legislatures, as well as in city councils and university governing boards. The campaign harkens back to the 1980s when states sought to distance themselves financially from the South African apartheid-era government. In order of passage, New Jersey, Illinois, Oregon, Maine, Connecticut, California, and Iowa have all enacted legislation specifically dealing with divestment from Sudan. The Illinois General Assembly, however, went too far according to a federal court.
On February 23, 2007, the Northern District of Illinois struck down the Illinois Act to End Atrocities and Terrorism in the Sudan (“Illinois Sudan Act” or the “Act”). The court held in National Foreign Trade Council v. Giannoulias that the Act, signed by Governor Rod Blageovich on June 25, 2005 and taking effect on January 27, 2006, violated the Supremacy Clause, the foreign affairs power of the federal government, and the Foreign Commerce Clause.1 The Act amended the Deposit of State Moneys Act2 and the Illinois Pension Code.3 This article first discusses the framework of the Illinois Sudan Act and the court’s reasoning for striking it down, and then analyzes how other Sudan divestment statutes compare and whether they would likely pass constitutional muster.
The amendments to the Deposit of State Moneys Act prohibited the investment of state money in bonds, notes, and debentures in Sudan,4 and, more controversially, prohibited the deposit of state funds into any financial institution unless it certified annually “that the financial institution has implemented policies and practices that require loan applicants to certify that they are not forbidden entities.”5 A “forbidden entity” included: 1) the government of Sudan, 2) companies wholly or partially owned by the government of Sudan, 3) companies established or having their principal place of business in Sudan, 4) companies identified by the Office of Foreign Assets Control in the United States Department of Treasury as sponsoring terrorist activities, and 5) companies that failed to certify that they do not “own or control any property or asset located in, have employees or facilities located in, provide goods or services to, obtain goods or services from, have distribution agreements with, issue credits or loans to, purchase bonds or commercial paper issued by, or invest” in Sudan or any company domiciled in Sudan. Humanitarian and journalism companies that engage solely in such endeavors or companies that are certified by the United Nations as non-governmental organizations were exempted from the definition of “forbidden entity.”
The change to the Illinois Pension Code prohibited the fiduciary of any retirement system or pension fund in Illinois from investing in an entity unless the fund’s managing company certified that it did not prospectively invest any of the fund’s assets in a “forbidden entity.” The definition of “forbidden entity” included the first four entities set forth in the definition above, and then added: 5) any publicly-traded company that “owns or controls property or assets located in, has employees or facilities located in, provides goods or services to, obtain goods or services from, has distribution agreements with, issue credits or loans to, purchase bonds or commercial paper issued by, or invest” in Sudan or any company domiciled in Sudan, and 6) any non-publicly traded company that fails to submit an affidavit averring that the company “does not own or control any property or assets located in the Republic of the Sudan” and “did not transact commercial business in the Republic of the Sudan.” Not insignificantly, this definition provides for the inclusion of private equity firms. As with the Deposit of State Moneys Act, the amendments allowed for the exception of humanitarian organizations and companies engaged in journalism. Under the Act, the fund manager had eighteen months in which to completely divest the fund of investments in forbidden entities.
The National Foreign Trade Council (an organization representing approximately 300 businesses), eight Illinois municipal pension funds, and eight beneficiaries of public pension funds sought injunctive relief pursuant to 42 U.S.C. § 1983. The plaintiffs claimed they were harmed because public corporations with connections to Sudan could not vie for Illinois’ pension funds, national banks had to either stop accepting loan applications from companies with connections to Sudan or stop receiving Illinois state funds, companies with connections to Sudan would no longer be able to do business with banks that chose to continue receiving funds from Illinois, municipal pension funds were limited in their investment choices, and individual beneficiaries of public pension funds would receive less return due to the increased restrictions.
In its opinion, the court in Giannoulias first offered a primer on federal policy and legislation relating to the government of Sudan, providing the contextual framework in which the Illinois Sudan Act would be analyzed. Signed by President Clinton on November 3, 1997, Executive Order No. 13067 freezes Sudanese government property in the US and prohibits many transactions between the US and Sudan, including all imports and exports of goods and services. The Trade Sanctions Reform and Export Enhancement Act passed in 2000 modified the Order, allowing the exportation of agricultural-related goods, medicine, and medical devices. The law prohibited the US government from assisting in exporting commercial goods but allowed the president to waive the restriction if necessary for national security or humanitarian reasons. In 2002, Congress passed the Sudan Peace Act for the purpose of ratcheting up the economic and diplomatic pressure on Sudan to stop the conflict and human suffering within its territory. The president was to report regularly to Congress on Sudan’s peace process negotiations. If the Sudanese government was not taking sufficient measures, the president had the authority to take additional action, such as seeking arms embargoes through the United Nations. The Comprehensive Peace in Sudan Act, passed in 2004, supplemented and amended the Sudan Peace Act, instructing the president to seek unilateral and multilateral strategies in ending the conflict in Darfur. The president had the authority to waive the measures if warranted by national security concerns. Lastly, the Darfur Peace and Accountability Act of 2006 froze the assets and restricted the travel of certain Sudanese government officials deemed to be involved in the humanitarian crisis in Darfur. Ships involved in the Sudanese oil sector were also prohibited from entering U.S. ports. The president again retained his authority to waive sanctions should national security concerns deem appropriate.
Dealing with each provision of the Act individually, the court first held that the amendments to the Deposit of State Moneys Act violated the Supremacy Clause because federal laws governing relations with Sudan—those listed above—preempt the Act. Federal law can preempt state law if Congress expressly states or evinces an intention to occupy an entire field, or if the state law conflicts with federal law.6 The court held that not only did Congress intend to govern all relations with Sudan, thus violating the Supremacy Clause, but also that the Act directly conflicted with federal law because it frustrated the federal government’s objectives with respect to US-Sudan relations.
The Act hindered the federal government’s policies in several ways. First, the Act contained no “safety valve” granting the State Treasurer flexibility to make exceptions, unlike the federal laws that allow the president to waive restrictions should national security or humanitarian reasons require it. Congress, the court stated, gave broad authority to the president to determine what, if any, sanctions and measures should apply. Even if the president deemed it was in the national interest to suspend, temporarily or otherwise, certain sanctions, the state law would continue because it did not have an “out.” The Act’s inflexibility did not allow the president to respond timely to policies affecting the national interest. Second, the Act prohibited certain transactions that the federal government allows, e.g., the Act applied to subsidiaries of US companies while the federal laws do not. Third, the Act applied to certain geographic areas such as Darfur and Southern Sudan, and business conducted therein, which were not covered under federal legislation. Due to these three areas of concern, the amendments “stand as an obstacle to the accomplishment of the national government’s objectives vis-à-vis Sudan.”
The court discussed at length Crosby v. National Foreign Trade Council, which involved a Massachusetts law prohibiting the state from purchasing goods or services from companies that did business with Burma. In affirming the First Circuit, the Supreme Court ruled the law unconstitutional because it was preempted by a federal law passed a few months later giving the president authority to pursue economic sanctions against Burma.7 The federal law also set forth initial sanctions, which would remain in effect until the president certified to Congress that improvements in human rights and democracy had been made. The Massachusetts law, like the Illinois Sudan Act, did not provide for a waiver or termination of the ban. According to the Supreme Court, the Massachusetts law set forth a different sanctions regime than the federal government and even went further in proscribing certain private action. Therefore, the state law violated the Supremacy Clause. The Court only addressed the Supremacy Clause argument and did not discuss other reasons the law was or was not unconstitutional.
Regarding the amendment to the Pension Code, the Northern District found that it did not violate the Supremacy Clause. Even though federal law “expressly restricts how companies can and cannot do business in Sudan, it is silent regarding divestment of holdings connected with Sudan.” The amendments to the Deposit of State Moneys Act exerted direct pressure on financial institutions to cut business ties with Sudan, thus interfering with federal policy. On the other hand, the correlation between the prohibition of state investment in certain companies and federal policy is less clear, i.e., there was no evidence that companies’ decisions to do business with Sudan was affected by Illinois pension funds’ inability to invest in such companies. Without supporting facts, the court reasoned that there was no apparent obstacle to congressional objectives.
The court also found the amendments to the Deposit of State Moneys Act to be within the federal government’s exclusive authority to conduct foreign affairs. Illinois’ “heavy-handed approach” to Sudan unconstitutionally entered the province of the federal government. The court noted that earlier cases involving state laws having foreign policy implications offer little indication where the line is drawn between acceptable state law and interference with the federal government’s foreign affairs power. Rather than providing a test, courts have merely emphasized the importance of the country speaking with “one voice.” Interestingly, the court offered the example of a state denouncing a foreign government and concluded that it would not infringe upon the federal government’s foreign affairs power: “Without some tangible effect or the risk of such an effect, it would be difficult to see how a state or local policy could interfere with the national government’s conduct of foreign affairs.” The relevant inquiry is “the degree of impact a state law has or might have on a national government’s conduct of foreign affairs.”
Although the amendments to the Deposit of State Moneys Act violated the foreign affairs power of the federal government, the Pension Code amendment did not. Again, without evidence the Act affected companies’ willingness to do business in Sudan, it could not be shown that the federal government’s foreign relations power had been infringed upon or hindered.
The court lastly addressed the Foreign Commerce Clause.8 After the court quickly dismissed Illinois’ argument that the Act did not implicate foreign commerce, the court discussed the “market participant” exception raised by Illinois. Illinois argued that the exception, which exempts states acting as “proprietors” from the limits of the Interstate Commerce Clause,9 applies to the Foreign Commerce Clause. The court acknowledged that circuits are split on whether the market participant exception applies to the Foreign Commerce Clause, but pointed to a case involving a law similar to the Act.10 In that case, the court held that the market participant exception did not apply. In the end, though, the court dodged the question, stating that it need not determine whether it applies because “Illinois is not acting exclusively as a market participant through its enforcement of the Illinois Sudan Act;” rather, Illinois was also acting as a regulator. The Act affected municipal pension funds in addition to state-controlled funds, and the Seventh Circuit had previously determined that the market participation exception is not available to the state when the participants are local political subdivisions.11
The court ultimately struck down the entire amendment to the Pension Code because it was unable to separate the statute’s unconstitutional application to municipal pension funds from the application to state pension funds. Therefore, the court did not determine whether the specific prohibition of state pension funds from investing in companies with ties to Sudan was constitutional or not. This was a key holding of the case, possibly indicating to other states wishing to pass similar legislation that state pension fund divestment schemes are not inherently unconstitutional. Because the court had found the Deposit of State Moneys Act violated the Supremacy Clause and the foreign affairs power of the federal government, and that the Pension Code amendment violated the Foreign Commerce Clause, the court did not address whether each of them were preempted by the National Bank Act.
Other states will certainly pay close attention to Giannoulias for a signal as to how their own statutes may hold up against constitutional scrutiny. Oregon passed one of the first Sudan divestment statutes, which became effective on August 23, 2005. It prohibits the Oregon Investment Council and the State Treasurer from investing in “any company that the council knows is doing business in Sudan for as long as the Sudanese government’s campaign of human rights violations, atrocities or genocide continues in Sudan.”12 Exempt from this provision are humanitarian and journalism organizations. In contrast to the Illinois Sudan Act, the Oregon statute only affects state-managed retirement and investment funds, and it neither prohibits investments in “United States companies authorized by the federal government to do business in Sudan” nor includes Darfur in the definition of “Sudan.”
Under Maine’s statute, which is the briefest and most straightforward divestment statute, the state pension plan must divest itself of any assets in stocks, securities or other obligations that are in “any corporation or company, or any subsidiary, affiliate or parent of any corporation or company, doing business in or with the nation of Sudan or its instrumentalities.”13 As with the Oregon statute, the Maine statute only covers state-managed retirement programs. The Maine State Retirement System does cover several hundred municipalities, but those “participating local districts” have chosen, rather than having been forced, to be a part of the state pension system.14 Maine’s statute became effective on August 23, 2006 and divestment must be complete by January 1, 2008.
New Jersey law prohibits any state-managed pension or annuity fund from investing “in any foreign company with an equity tie to government of Sudan or its instrumentalities and is engaged in business in or with the same.”15 “Equity tie” is defined as “manufacturing or mining plants, employees or advisors, facilities or an investment, fiduciary, monetary or physical presence of any kind.” Divestment must be complete no more than three years after the effective date of August 1, 2005.
Connecticut has promulgated a much different divestment plan than the other states. Connecticut’s statute, which became effective on May 8, 2006, mandates divestment and prohibits the State Treasurer from investing in securities or instruments issued the government of Sudan, but the statute grants discretionary authority to the State Treasurer on whether to divest in or not enter into future investments with “any company doing business in Sudan.”16 The statute provides factors that the Treasurer should consider but there is no indication as to whether any one of them is dispositive.17 The definitions of “company” and “doing business” largely mirror those used in Oregon’s statute.18 Notably, Connecticut’s statute provides a waiver in that the law is no longer effective if the President rescinds or repeals Executive Order 13067.
California also has an interesting statute. The law only affects two public pension funds (California Public Employees’ Retirement System, California State Teachers’ Retirement System), but they are the two largest public pension funds in the country, worth between $350-$400 billion. Under the statute, neither fund may invest in a company that has “active business operations in Sudan,” and is either: 1) engaged in oil-, energy-, or power-related activities in Sudan or contracts with another company that conducts such operations, and the company failed to take substantial action related to the government because of the genocide; or 2) “has demonstrated complicity in the Darfur genocide.”19 Additionally, the funds cannot invest in companies that provide military equipment within Sudan, and there is a strong presumption against investing in companies that provide material that may be readily used for military purposes, such as radar systems or military-grade transport vehicles. Importantly, the statute specifically exempts investments in U.S. companies that are “authorized by the federal government to have business operations in Sudan,” as well as humanitarian and journalism organizations. Similar to Connecticut’s flexibility and contrary to Illinois’ rigid structure, the California provisions will not longer apply if Sudan halts the genocide in Darfur for 12 months as determined by both the State Department and Congress, and if the U.S. revokes its current sanctions against Sudan.
Iowa recently signed its own divestment statute into law on April 5, 2007.20 It targets companies engaged in power production, mineral extraction, or oil-related activities,21 companies complicit in the genocide, and companies that supply military equipment within Sudan.22 Notably, the law does not reach companies that the US government declares are excluded from its sanctions regime in Sudan and companies that are minority owners in prohibited companies. The also has several built-in waivers when the provisions relating to Sudan will not apply. If Congress or the president declares that genocide has halted for 12 months; the U.S. revokes all sanctions against Sudan; Congress or the president declares that mandatory divestment of this type interferes with U.S. foreign policy; a controlling circuit or district court declares that mandatory divestment of this type is preempted by federal law, then the statute will not be applied.
Some states have adopted policies without legislative direction. Without state legislation, in early 2007 the Vermont Pension Investment Committee adopted a new policy whereby all state-managed funds would divest from companies and governments linked to terrorist or genocidal activities, including Sudan, Iran, and Syria.23 The State Treasurer of Vermont, who chairs the Committee, informed the public that the policy would target only those companies that support rogue governments and their policies rather than those that might actually be helping the vulnerable citizenry. Under this approach, the Treasurer stated that “we wouldn’t sell out of Coca-Cola just because the drink is sold in a bazaar in Khartoum.”24
With such a growing awareness of the problem, more and more actors are using their powers of the purse to make political statements against the Sudanese government. Besides the states that have already passed laws, many others have introduced legislation relating to Sudan divestment schemes. A few have already failed in committee or on the floor while over a dozen others are making their ways through legislative halls. Cities joining in with their own divestment policies targeting Sudan include Philadelphia, Pittsburgh, San Francisco, Providence, and New Haven. More than 30 universities, some with endowments worth billions of dollars, are also pulling out of Sudan-related investments. A sizable number of companies presumably will again fight state attempts to regulate what the companies regard as foreign policy concerns. Plaintiffs such as the National Foreign Trade Council, which has a history of similar claims, will undoubtedly continue to argue that the state divestment schemes are unconstitutional. But with the ruling in Giannoulias, we now have a better understanding of how far states may go in making political statements when asserting their financial power.
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Jacob Ramer received his J.D. in 2006 from Chicago-Kent College of Law. He may be reached at jacobramer@yahoo.com.
1. 2007 WL 627630, No. 06 C 4251 (Feb. 23, 2007).
2. 15 ILSC 520/22.5-22.6
3. 40 ILCS 5/1-110.5
4. 15 ILCS 520/22.5.
5. 15 ILCS 520/22.6.
6. Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984).
7. 530 U.S. 363 (2000).
8. U.S. Const., art. I, § 8, cl. 3. (“The Congress shall have power to … regulate commerce with foreign nations…”)
9. College Sav. Bank v. Fla. Prepaid Postsecondary E. Expense Bd., 527 U.S. 666 (1999).
10. Foreign Trade Council v. Natsios, 181 F.3d 38 (1st Cir. 1999).
11. W.C.M. Window Co. v. Bernardi, 730 F.2d 486 (7th Cir. 1984).
12. O.R.S. § 293.812-816 (emphasis added). The definition of “company” is “any sole proprietorship, organization, firm, association, corporation, utility, partnership, venture, public franchise, franchisor, franchisee or its wholly owned subsidiary that exists for profit-making purposes or otherwise to secure economic advantage.” The definition of “doing business” is “maintaining equipment, facilities, personnel or any other apparatus of business or commerce in Sudan, including the ownership or possession of real or personal property located in Sudan.”
13. 5 M.R.S.A. § 1956
14. For more information on the Maine State Retirement System, see <http://www.msrs.org/organization.htm>.
15. N.J.S.A. 52:18A-89.9.
16. C.G.S.A. § 3-21e
17. The list of factors includes: whether the company directly pays revenue to Sudan; supplies resources or infrastructure that facilitates genocidal policies; usurps US sanctions; is authorized to do business in Sudan; obstructs lawful inquiries into its operations and investments in Sudan; undertakes humanitarian activities; engages the government in ending abuse; or is involved solely in journalistic endeavors.
18. The definition of “company” includes “any corporation, utility, partnership, joint venture, franchisor, franchisee, trust, entity investment vehicle, financial institution or any wholly-owned subsidiary of such corporation.” The definition of “doing business” is defined as “maintaining equipment, facilities, personnel or other apparatus of business or commerce in Sudan, including, but not limited to, ownership of real or personal property in Sudan, or engaging in any business activity with the government of Sudan.”
19. The statute defines “active business operations” as “maintaining, selling, or leasing equipment facilities, personnel, or any other apparatus of business or commerce in Sudan, including the ownership or possession of real or personal property located in Sudan” that provides “revenue to the government of Sudan of a company engaged in oil-related activities.”
20. Iowa General Assembly, Senate File 361, available at <http://coolice.legis.state.ia.us/Cool-ICE/default.asp?Category=billinfo&Service=Billbook&frame=1&GA=82&hbill=SF361>.
21. The statue specifically targets companies that have more than 10 percent of their revenues or assets linked to Sudan coming from oil-, mineral-, or power-related activities, have less than 75 percent of their activities involving oil, minerals, or power contracts with the regional government of southern Sudan or the marginalized populations of Sudan, and have failed to take substantial action against the genocide.
22. The statute prohibits investment in companies that supply military equipment within Sudan, unless it cannot be used for offensive military operations in Sudan or there are safeguards in place to prevent such use. Companies supplying military equipment to the regional government of southern Sudan or any internationally recognized peacekeeping force or humanitarian organization can be invested in.
23. State of Vermont, Office of the State Treasurer, Vermont Pension Funds to Avoid Investments in Terrorist-Linked Countries, News Release, January 8, 2007, available at <http://www.vermonttreasurer.gov/documents/press/20070109_pr.pdf>.
24. Svea Herbst-Bayliss, Vermont fund finishes pulling money out of Sudan, Reuters, Feb. 26, 2007, available at <http://www.vermonttreasurer.gov/documents/newsClippings/20070226_VermontfundpullingoutofSudan.pdf>.
Earlier this year, a potential client called our office. He explained that he worked for a Chicago area company and had an opportunity for a promotion. However, the new position would require him to visit Canada three or four times a year.
He explained that he had heard that the fact that he had a DUI conviction three or four years ago might cause him difficulty when he arrived in Canada.
The difficulty for him is that his employer did not know about the DUI conviction. He was trying to clarify his legal position if he did go to Canada. He was then faced with the issue of not saying anything to his employer and taking his chances when he arrived in Canada, or disclosing to his employer the DUI conviction and potentially be barred from the current promotion and become a major problem for him in his career at the company.
Penalties for driving under the influence (DUI) have become increasingly more stringent. In the face of fatal accidents involving alcohol and influential interest groups, Lawmakers in Illinois are creating new laws that make DUI penalties even more severe. Yet, many Illinois citizens are not aware that their criminal records could affect them outside the country.
I have heard rumors around the courthouses that in the past, persons convicted of DUI, even second or subsequent DUIs, could be sentenced to supervision multiple times. I have heard old rumors that DUI sentencing was “just a slap on the wrist.” DUIs are now taken very seriously; for example, Illinois legislature has imposed mandatory minimum sentences.1 In 2002, §11-501 stated that a conviction for DUI is a class A misdemeanor, the same as §11-501 enacted June 28, 2006, except that the class of the charge is simply listed in a different section.2 However, §11-501 as enacted in 2006 adds sections b-3, b-4, and b-5, which impose mandatory minimum sentences for multiple violations of these sections.3 B-4 declares that any person convicted of a third DUI within five years from their previous conviction will be sentenced to a mandatory minimum term of 10 days of imprisonment or 480 hours of community service.4 B-5 states that the terms of prison and community service cannot be reduced.5 In the past, you could have attempted to sway the court to sentence you to supervision for your third DUI, but now you may face mandatory jail time that cannot be reduced.
Moreover, in addition to jail or community service, DUI convictions are becoming increasingly more expensive. In an article from the Southern Illinoisan, Mark Hunter, from Kruger, Henry and Hunter, is quoted as saying that a first DUI conviction could cost around $2,000.6 The article also states that a second DUI could cost at least $7,500.7 Recently, I represented a client in Lake County, Illinois, and my client’s criminal fines and court costs added up to over $2,000. This amount did not include the cost for mandatory counseling, which was nearly $1,500 and my fees, although it was my client’s second DUI conviction. Moreover, this client was brought back to court on a Petition to Revoke (PTR) the sentence of conditional discharge for failing to pay his fines on time. If found to have violated his sentence, he could be re-sentenced on the DUI charge to include more fines or even jail.
On February 11, 2007, five Illinois teenagers were killed in an accident where the driver had allegedly consumed alcohol.8 These occurrences make one stop and think that the consequences of drunk driving can be even more severe than an empty wallet or time spent in jail. As a reaction to the deaths of the teens, Representative Tom Cross proposed House Bill 3131, which creates 625 ILCS 5/6-206.3, a law that would suspend a teen’s driving privileges when convicted of even consuming alcohol.9 According to Representative Cross, a teen’s license is important to them and the new legislation is aimed at imposing a punishment that they would respond to.10
In addition, other new legislation targets all DUI offenders and creates new requirements if the offenders would like to keep driving. Senator Cullerton proposed Senate Bill 300, which creates new regulations for breath alcohol ignition interlock devices (BAIIDs).11 BAIIDs are installed into vehicles, drivers submit a breath sample, and the vehicle will not run unless the driver’s blood alcohol concentration is 0.0. Senate Bill 300 provides 1) that judicial driving permit applicants now will have to install the IID, 2) all DUI offenders will have to install the device, 3) creates rules regarding compliance with the IID program, 4) requires treatment programs for persons who have BAIIDs installed but who continue to attempt to drive under the influence, 5) provides for alternative monitoring programs for DUI offenders who do not own vehicles, and 6) creates a fund to support those who cannot afford the IID installation fees.12 Compared to the days when a DUI offender could go to court, request supervision, pay a fine and be done with the process, now DUI offenders may have to comply with strict monitoring programs that look to be very costly.
While these penalties may be shocking to some, and necessary to others, DUI laws remain in the American public eye. However, what many may not realize is that other countries are also creating policies regarding DUI offenders, and the new rules outside the United States may affect US citizens.
Canada has created rules that bar persons convicted of crimes, including DUI convictions, from entering the country. Specifically, the Canadian Consulate General, in the Visas and Immigration section of their Web site, states, “Driving under the influence of alcohol is regarded as an extremely serious offence in Canada.”13 Persons convicted of DUI in the United States are considered to be “Members of an Inadmissible Class.”14 The Web site does not indicate whether a person sentenced to supervision would be affected in the same way, although if one construes the language of the Web site literally, persons sentenced to supervision on a DUI charge could enter Canada without extra permit requirements.15 Clearly, Canada is attempting to prevent persons convicted of crimes from entering their country, for any reason, even for vacation.
If you have been convicted of a DUI, there are ways to apply to enter Canada. If more than ten years have passed, you have only one conviction for DUI on your record, and your full driving privileges were restored, you may be deemed rehabilitated.16 You do not need to submit any forms to the Canadian government; however, if you are not sure if you meet the qualifications for rehabilitation, you may submit an application for rehabilitation. The Consulate warns that the process may take up to six months and there is a nonrefundable fee.17 All the forms may be found at the Web site.
If it has been less than ten years since your DUI conviction, or you have multiple convictions on your record, you must apply for a Temporary Resident Permit (TRP).18 In order to qualify for a TRP, the Canadian government will take into account the nature of the offense you committed, your criminal record, the time elapsed since your last violation, reports from the court and sentence supervisory staff, the purpose for which you seek to enter the country and your standing in the community.19 Along with the application that can be found on the Web site, an applicant may have to submit copies of police reports and/or copies of your criminal record, a personal statement of the circumstances surrounding your conviction, court records, a copy of the statute you violated, and three letters from persons of standing in your community.20 These requirements are strict; they advise that the process may take up to six months and there is a non refundable fee.21 The TRP process appears to be costly, time consuming, and would be burdensome on a person required to enter Canada for business. Most people I have encountered do not want to discuss their criminal record, and to obtain letters from persons in the community so that you could enter Canada on business would be potentially embarrassing.
But, how do the Canadians know if you have been convicted of a DUI? According to the anonymous writer from the Canadian Consulate, they “will not discuss how [their] officials are aware of a person’s criminal past. The onus is on the visitor to declare if there was any charge, incarceration or conviction in his/her past.” Obviously lying to a government official is ill advised and probably a criminal violation, but it is clear that one should not offer information to the border patrol agents when they are looking to see the Niagra Falls from the other side. The writer Ed Perkins alleges that Canadians are “data mining” and that the United States may be sharing criminal record information internationally.22 Thus, beware if you have been convicted of a DUI these days; not only will a DUI conviction haunt you in Illinois, but your criminal record, based on any offense, may follow you across the world.
The potential client decided to decline the offered promotion, giving the excuse that with young children he did not want to travel. He also indicated he would start looking for a new job since the decline of a promotion would affect his company’s view of him for potential promotions in the future.
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Maryann M. Bullion, an associate with Matuszewich, Kelly & McKeever, LLP in Crystal Lake and in Chicago, is a graduate of Spring Hill College and has a J.D. from University of Miami, Florida. She may be reached at mmbullion@mkm-law.com.
1. 625 ILCS 5/11-501)(effective June 28, 2006).
2. 625 ILCS 5/11-501(c)(effective July 11, 2002) and 625 ILCS 5/11-501(b-2)( effective June 28, 2006).
3. 625 ILCS 5/11-501(effective June 28, 2006).
4. 625 ILCS 5/11-501(effective June 28, 2006).
5. 625 ILCS 5/11-501(effective June 28, 2006).
6. Andrea Hahn, “DUIs Can Add Up to Several Thousand Dollars” (March 23, 2007) at <www.southernillinoisan.com/articles/2007/03/23/local/19701590.txt>.
7. Andrea Hahn, “DUIs Can Add Up to Several Thousand Dollars” (March 23, 2007) at <www.southernillinoisan.com/articles/2007/03/23/local/19701590.txt>.
8. Matt Hanley, “Teens Who Drink Could Loose License” (March 26, 2007) at <www.suburbanchicagonews.com/beaconnews/news/313618.AU26_CROSS_WEB.article>.
9. H.B. 3131 (proposed March 26, 2007)(95th General Assembly).
10. Matt Hanley, “Teens Who Drink Could Loose License” (March 26, 2007) at <www.suburbanchicagonews.com/beaconnews/news/313618.AU26_CROSS_WEB.article>.
11. S.B. 300 (proposed March 23, 2007)(95th General Assembly).
12. S.B. 300 (proposed March 23, 2007)(95th General Assembly).
13. Canadian Consulate General Detroit, Persons Who Are Inadmissible to Canada.
14. Canadian Consulate General Detroit, Persons Who Are Inadmissible to Canada.
15. I would like to point out that I asked the Detroit office of the Canadian Consulate General to comment on these provisions, but in an anonymous statement, I was told, “We do not interact with the public directly face to face or by telephone, only in writing.” I submitted these questions in writing, and the anonymous reply was to refer to the Web site.
16. Canadian Consulate General Detroit, Are You Criminally Inadmissible to Canada?
17. Canadian Consulate General Detroit, Are You Criminally Inadmissible to Canada?
18. Canadian Consulate General Detroit, Persons Who Are Inadmissible to Canada.
19. Canadian Consulate General Detroit, Persons Who Are Inadmissible to Canada.
20. Canadian Consulate General Detroit, Persons Who Are Inadmissible to Canada.
21. Canadian Consulate General Detroit, Persons Who Are Inadmissible to Canada.
22. Ed Perkins, “Canada May Bar You For Old DUI,” Chicago Tribune (date).
American and European Approaches
The European Insolvency Regulation1 (EIR), the UNCITRAL Model Law on Cross-Border Insolvency2 and Chapter 15 of the U.S. Bankruptcy Code3 (Chapter 15) all contain a four-word mystery: “center of main interests.” The European courts have been interpreting this term (COMI) for four years; the European Court of Justice (ECJ) has delivered two important judgments related to the EIR;4 and now the U.S. bankruptcy courts have also construed it. Is the European approach different from the U.S. one?
The EIR distinguishes two kinds of bankruptcy proceeding under European Union law—“main proceedings” and “secondary proceedings.” It sets forth a rebuttable presumption that the debtor’s center of main interests is the place of its registered office.5 To have jurisdiction over a main proceeding, courts must be located in the state of the debtor’s COMI. Courts outside the COMI country may only hear related claims if the debtor has an “establishment” there. The EIR defines “establishment” as “any place of operations where the debtor carries out a non-transitory economic activity with human means and goods” in that state. While the courts in the COMI country have jurisdiction over the debtor’s total assets, wherever located, courts hearing secondary proceedings may only assert jurisdiction over the assets located in their country.6
The COMI presumption in Chapter 15 is the same as in the EIR and serves as a fast and convenient proof of COMI where no serious controversy exists.7 Also like the EIR, Chapter 15 recognizes foreign “main and non-main” proceedings. In a recent U.S. decision, however, the court in In re SPHINX, Ltd.,8 (hereinafter SPHINX) noted that the proceeding’s status as “main” is not particularly significant because the bankruptcy court can grant “substantially the same types of relief in assistance” in both types of proceeding.9
The U.S. legal position differs significantly from the European one. In the EU, the court’s jurisdiction is conditioned upon and limited by the precise finding of COMI or “establishment.” In the U.S., on the other hand, the criterion upon which the foreign proceeding was opened is not the key. Instead, the court will use either COMI or establishment as a basis for recognizing a proceeding that was opened abroad based on any criterion.
Europe – Eurofood
The European Court of Justice (ECJ) interpreted COMI under the EIR for the first time in May 2006, when it decided Eurofood IFSC Ltd. (hereinafter Eurofood). Irish Eurofood is a wholly owned subsidiary of Italian Parmalat SpA. Italian and Irish courts both asserted jurisdiction over the main proceedings as alleged COMI countries.Pursuant to EU law, 10 the Irish Supreme Court then asked the ECJ to determine the COMI, based on the following factors. The debtor’s registered office (Ireland) and the parent’s office (Italy) are located in different EU member states. The Irish subsidiary administrates its interests on a regular basis as an independent legal entity in the state of its registered office and in a way ascertainable to third parties. The Italian parent owns 100 percent of the subsidiary’s shares; appoints its the directors; and thus controls its corporate policy.11 The issue, therefore, was which of the above factors were more decisive in determining COMI.12
The ECJ Advocate General delivered his opinion in September 2005,13 concluding that such control by the parent over the subsidiary is not sufficient to rebut the EIR presumption.14 To show COMI, the Italian parent would have had to show “strong evidence of overriding and ascertainable control” over its Irish subsidiary.15
The Advocate General (“AG”) applied the “head office functions” test. While this test originates in English case law, the EU member states do not share a single, fixed, “head office functions test” as of this writing. Noting that the head office location is often only nominal, the AG applied this test because it looks to the place where the head office functions are actually carried out as key in determining the COMI.16
Subsidiary and parent often have the same head office functions center. The EIR, however, does not have any black-letter rule for affiliated companies. Therefore, courts must determine each entity’s COMI on a case-by-case basis.17 As this article goes to press, there has not yet been an affiliated group dispute on COMI analogous to Eurofood under Chapter 15 of the U.S. Bankruptcy Code.
Head office functions test applied by member states
Several courts in unrelated cases subsequently applied the head office functions test relying on the conclusions of the Advocate General.18 In the EMTEC Group cases,19 French courts construed a non-exhaustive list of factors which constitute the headquarter functions test.20 These include: place of board meetings; law governing main contracts; place of business relations with clients; place where the group commercial policy defined; whether subsidiary needs parent’s prior authorization to enter into certain financial transactions; place where creditors are located; and management of business purchasing, human resources, and accountancy and information technology systems. This test is a variation of earlier U.K. and German cases.21
The French court searched for what the AG had called a “strong evidence of overriding and ascertainable control” by parent over its subsidiaries. In another French case, Energotech, the court considered COMI an “operative center of management of the debtor’s business ascertainable for the third parties.”22 Because a subsidiary relied heavily on its parent both operationally and financially, the Energotech court held that subsidiary’s COMI was located in the same place as its parent’s.23
The ECJ takes a different approach
In its Eurofood ruling, the ECJ did not use the head office functions test to determine COMI. Moreover, the court held that the term “COMI” was not susceptible to varying interpretation, but instead required uniform interpretation throughout the European Union.24 Since Eurofood, EU member states’ courts can no longer construe COMI in light of individual member state legislation. Instead, the registered office presumption may be rebutted only if factors, both objective and ascertainable by third parties, would make it possible to locate the company’s COMI in a place different from its registered office.25
Under Eurofood, we do not know which factors are sufficient to overcome a presumption of COMI in the business’ registered office. We do know, however, that the factors must be both objective and ascertainable by third parties for purposes of legal certainty and foreseeability. Parent’s ability to control the business decisions of the subsidiary does not suffice to rebut the presumption.26
Ascertainability and objectivity test
The EIR provides that the COMI is the place where the debtor administrates its interests on a regular basis and in a manner ascertainable by the third parties.
“Third parties” are broader than just companies, banks and investors. Consumers and employees may qualify as third parties. Is the standard, if any, objectively similar for all of them?
In the Emtec Group cases, the French court assumed that the creditors clearly knew that the subsidiary’s COMI was located at the parent’s registered office. The court did not inquire into how the creditors actually ascertained the COMI, but simply concluded that debtor’s COMI was objectively ascertainable to them.27 The court treated the employees differently from the creditors, however, and actually asked the employees of Emetic’s Benelux and Austrian subsidiaries where they thought the company was administered.28 The Energotech court, on the other hand, did not mention the employees of the Polish subsidiary at all.
The SPHINX court held that local creditors were not the only parties whose interests have to be considered. Courts have to focus on the interests of all creditors and other interested parties, not just those of U.S. parties,29 thereby requiring greater communication between courts. Indeed, the draft version of the European Communication and Cooperation Guidelines For Cross-border Insolvency30 is modeled after the Principles of Cooperation Among the NAFTA Countries drafted by the American Law Institute.
U.S. – SPHINX
The United States Bankruptcy Court decided its first COMI dispute under Chapter 15 in September 2006, shortly after the ECJ’s decision in Eurofood. In SPHINX, the issue before the Southern District Court of New York was whether Cayman Islands proceedings should be recognized as foreign main proceedings or foreign non-main proceedings.
As the SPHINX court noted, Chapter 15 is unique in the Bankruptcy Code in that Congress stated its purpose explicitly: to implement the Model Law on Cross-Border Insolvency promulgated by the U.N. Commission on International Trade Law (UNCITRAL Model Law).31 Like European courts, U.S. courts must construe the COMI concept in light of its international origin. Congress explicitly directed courts to look to foreign jurisdictions to see how they had applied the Model Law in their statutes.32 Foreign proceedings, their recognition, presumptions, as well as the extent to which such presumptions may be rebutted must all form part of a COMI analysis for the court. The foreign representative bears the burden of proof on the COMI question.33
As discussed earlier, both objectivity and ascertainability were necessary in Eurofood. The SPHINX court, nonetheless, applied the COMI test only in part. The Court applied the administration-of-interests test to find that the debtors had conducted their hedge funds business as well as their back-office operations outside Cayman. These factors were sufficiently important for the court to find objectivity. The court failed to address ascertainability, but just concluded that COMI was located outside the Caymans. In dicta the court noted that, “[T]he statutory presumption of section 1516(c) may be of less weight in the event of a serious dispute.”34
Neither the EIR nor Chapter 15 enumerates the evidence needed to rebut the presumption. The SPHINX court, in contrast to the ECJ, listed several factors, which “singly or combined” could be relevant to the COMI determination:
…the location of the debtor’s headquarters; the location of those who actually manage the debtor (which, conceivably could be the headquarters of a holding company); the location of the debtor’s primary assets; the location of the majority of the debtor’s creditors or of a majority of the creditors who would be affected by the case; and/or the jurisdiction whose law would apply to most disputes.35
The SPHINX court advised courts not to apply these factors mechanically because the driving policies behind chapter 15 are to grant fair procedures to the parties and to maximize the debtor’s value.36 Courts have to protect the legitimate interests of the opposing parties, especially where the COMI is in dispute.37 Courts and parties should cooperate rather than just artificially choose one proceeding as primary.38 The court’s reasoning for this was clear: the creditors’ money is what’s at stake. Courts “should defer, therefore, to the creditors’ acquiescence in or support of a proposed COMI.”39
The court found that SPHINX’s COMI could actually be located in both places, in and outside the U.S. Where so many objective factors pointed to the COMI outside Cayman Islands and no negative consequences ensued from finding COMI in New York, the court assessed which proceeding (main or non main) would provide greater benefit to all parties.40 Under the statute, a non-main proceeding may become a main proceeding, and vice versa.41
The issue before the court was then whether a foreign proceeding could be classified as non-main where there was no other plenary proceeding against the debtor, that is, no main insolvency proceeding pending elsewhere. The court looked to Chapter 15 and observed that nothing in the statute “provides that there cannot be a ‘non-main’ proceeding unless there is a ‘main’ proceeding.”42 In other words, the court refused to hold Cayman as the COMI for no better reason than the absence of proceedings elsewhere. It noted that a “plenary proceeding could easily be filed outside the Cayman Islands,” given SPHINX’s contacts beyond the Cayman Islands. Debtors could be either plaintiffs or defendants in this hypothetical proceeding. Moreover, the “shadow” proceeding, as the Court called it, “would quite conceivably qualify as a main proceeding given the Debtors’ lack of contacts with the Cayman Islands.”43
While this decision seems sound at first, I would argue that the Cayman proceeding should not have been recognized under Chapter 15 at all. The U.S. court should have declined an order of recognition, as I shall explain.
The SPHINX court analyzed the COMI factors necessary to recognize the foreign main proceeding. Debtor’s sole activity in the Cayman Islands was to remain in good standing as a registered company under Cayman law.44 Like the European secondary proceedings,45 the non-main proceeding is by definition tied to the country where the debtor has its “establishment.” Under Chapter 15, “establishment” is a place of operation where the debtor carries out a non-transitory economic activity.46 The EIR definition of “establishment” is identical except that the debtor carries its economic activity “with human means and goods.”47 The SPHINX court recognized the Cayman proceeding as non-main without addressing whether the Debtors had an establishment in the Cayman Islands at all.
If the court denies recognition, Chapter 15 provides that it may issue any appropriate order necessary to prevent the foreign representative from obtaining comity or cooperation from courts in the United States.48 As the SPHINX court itself noted, when providing assistance under the principles of comity, it is not relevant “whether or not the foreign jurisdiction is the COMI or the foreign proceedings are treated as main or non-main.”49 This gives rise to the question of whether American courts can still provide assistance to foreign courts absent a finding of COMI or establishment. Could the U.S. court still assist the foreign proceeding under the principles of comity? I think it must be able to, simply because this is the only way of filling the gap. Thus the SPHINX court should have held that it could not recognize the proceedings under Chapter 15, but that it could assist the foreign proceedings under the principles of comity.
In another recent case heard in the Eastern District of California, In re Tri-Continental, the debtors conducted regular business operations at their registered offices.50 The court relied on U.S. case law to find that regular business operations demonstrate principal place of business to prove COMI.
Applying American judge-made tests is not very suitable where there is a worldwide effort to establish a brand new and independent criterion, and where Congress has directed the courts to look abroad.
Conclusion
Clearly, the debate on cross-border insolvency and the COMI will continue to raise more specific questions. When addressing them, global courts should not restrict themselves to local frameworks and home-grown analyses.
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Petra Novotna just graduated from the Law School of Masaryk University, Czech Republic. She was a Czech Program visiting student at The John Marshall Law School in the fall semester of 2006. Ms. Novotna specializes in the European Union and international business law. She can be reached at petra.novatna@gmail.com.
1. COUNCIL REGULATION (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings, Official Journal L 160, 30/06/2000 P. 0001 – 0018 (hereinafter “EIR”).
2. UNCITRAL Model Law on Cross-border Insolvency with Guide to Enactment, adopted May 30, 1997.
3. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23.11 U.S.C. §§ 1101 et seq.
4. Eurofood IFSC Ltd., Case C-341/04, 2006 ECJ CELEX LEXIS 199 and Susanne Staubitz-Schreiber, Case C-1/04, 2006 ECJ CELEX LEXIS 24.
5. EIR, art. 3¶1.
6. EIR, article 3 ¶2 (h).
7. In re: SPHINX, Ltd., 351 B.R. 103, 117. (Bankr. S.D.N.Y. 2006), citing Congress H.R. Rep. 109-31, pt. 1, 109th Cong. 1st Sess. at 112-113 (2005).
8. Id at 116.
9. See e.g. 11 U.S.C. §§ 1519, 1521 or 1507.
10. Article 234 of the EC Treaty grants jurisdiction to the ECJ to give preliminary rulings concerning the interpretation of the EC Treaty; the validity and interpretation of Community acts and institutions; and the statutes of “bodies established by an act of the Council, where those statutes so provide.” The preliminary ruling is optional for cases heard by the lower courts of the Member States, but obligatory when the case is being heard by the court of last instance, typically the supreme court of the Member State. Treaty Establishing the European Community, Nov. 10, 1997, 1997 O.J. (C340) 3 [hereinafter EC Treaty].
11. Case C-341/04, Eurofood IFSC Ltd., 2006 ECJ CELEX LEXIS 199 (May 2, 2006) at ¶24.
12. Id.
13. Opinion of Mr. Advocate General Jacobs, 2005 ECJ CELEX LEXIS 630 (Sept. 27, 2005).
14. In addition, Advocate General Jacobs states in id., at ¶121, that complete ownership and full control over management are not sufficient , of themselves, to demonstrate real control, for purposes of COMI, even if ascertainable to third parties. Moreover, real control of the subsidiary’s policy by the parent is not often ascertainable to third parties.
15. Id., at ¶¶123 - 126.
16. Id, at ¶111.
17. Id, at ¶117.
18. See art. 222 of EC Treaty, supra note 9. ECJ statutes specify AG functions. Typically, the AG describes facts and the main legal issues of the case. He analyzes the case within the framework of EU law as it relates to member states law. His opinion has the same number as the ECJ case and is published together with the judgments. His decision does not bind the ECJ, however.
19. In EMTEC Group cases: NV EMTEC CONSUMER MEDIA BENELUX, 2006J00168, GMBH MPOTEC, 2009J00174, Tribunal du Commerce de Nanterre, (2006), EMTEC Magnetics, ECE reported in Le Juge du commerce No. 33, Avril 2006, 49. See also Energotech, Tribunal de Grande Instance de Lure (2006) No.06/01.
20. NV EMTEC CONSUMER MEDIA BENELUX, 2006J00168, Tribunal du Commerce de Nanterre, at 5.
21. NV EMTEC CONSUMER MEDIA BENELUX, 2006J00168, Tribunal du Commerce de Nanterre, (2006), at 5, 6. The French court refers to the case MG Rover Group, EWHC 874 (CHAN., 2005). In MG Rover case the UK judge weighed the scale of interests and their importance at different places when construing the COMI for all the subsidiaries. The important factors were e.g. the management and board constitution, financial structure of the group, autonomy and independency in trading, financial relationships to chief creditors and suppliers, ascertainability and integrity of the subsidiary network as a whole. The head office functions concept originates in Daisytek-ISA Ltd., (High Court of Justice, Chan. 2003) [2003] B.C.C. 562. The test was used also in Germany in Hettlage AG & Co KG, Innsbruck. (München District Court 2004) 1501 IE 1276/04.
22. Energotech, at 3.
23. Id. at 4.
24. Eurofood, at ¶31.
25. Id. at ¶37
26. Id. at ¶33.
27. EMTEC Benelux, at 7.
28. Id., at 3.
29. SPHINX, at 113, citing Congress.
30. WESSELS B, VIRGÓS M., European Communication and Cooperation Guidelines For Cross-border Insolvency, INSOL Europe, 2006. Available at <http://bobwessels.nl/wordpress/?p=16>.
31. SPHINX, at 112.
32. SPHINX, at 118 citing 11 USCS § 1508. In SPHINX, the court focused on the Eurofood decision, too.
33. Id., at 117.
34. SPHINX at 117 citing H.R. Rep. 109-31, pt. 1, 109th Cong. 1st Sess. at 112-113 (2005).
35. Id.
36. Id.
37. Id.
38. Id., at 118.
39. Id., at 117.
40. SPHINX, at 121.
41. Id., at 122, 11 USCS § 1517(d).
42. Id., at 122.
43. Id.
44. SPHINX, at 119. See also facts at 107-108. SPHINX did not conduct a trade or business in the Cayman Islands and had no employees, physical offices or managers there. The Debtors’ boards, which contained no Cayman Islands residents, never met in the Cayman Islands.
45. Secondary proceedings under EIR always have to be a winding up proceedings. But EIR article 34 enables the liquidator in the main proceedings to reorganize in secondary proceedings if it is useful and possible under the law of the state where secondary proceedings are pending.
46. 11 USC 1502(5)(2).
47. See EIR article 2 (h).
48. 11 USC 1509 (d).
49. SPHINX, footnote 21, citing In Cambridge Gas Transport Corp. v. Official Committee of Unsecured Creditors (of Navigator Holdings PLC et al.), [2006] UKPC (Lords of the Judicial Committee of the Privy Counsel) 26 (U.K.) [2006], 3 All E.R. 829, at 22, 26 ([2006] B.C.C. 962) and In re Aerovias Nacionales De Colombia S.A. Avianca & Avianca, Inc., 345 B.R. 120 (S.D.N.Y.2006).
50. In re Tri-Continental Exchange Ltd. 349 B.R. 627, 629 (Bkrtcy.E.D.Cal., 2006). The Uncitral Legislative Guide also cites Recital 13 as a persuasive source of evidence for the court.