Curtailing the long arm of US law

Two acts enabling US courts to pass sanctions against foreign companies are being challenged by three landmark cases

The pressure is rising on US legal policy. Its extraterritorial legal powers, under which US courts sanction companies and individuals, even though the dispute in question has only very loose US connections, are being challenged in three groundbreaking cases.

The first involves a claim by Iran challenging the US’s Iran-Libya Sanctions Act 1996 (the act). It is also, interestingly, the last case to be heard before the Iran-US Claims Tribunal, which for the past 22 years has handled claims arising out of contracts breached due to the 1979 revolution in Iran.

The EU has been a committed opponent of the act, which allows US courts to fine and impose restrictions on companies conducting business with Iran and Libya, although the restrictions on Libya have been watered down since the latest round of peace talks between the country’s leader Muammar Gadafi and Tony Blair.

The EU claims the act is an example of US muscle-flexing at a cost of massive underdevelopment of lucrative Iranian resources. In legal terms, it is a classic example of US ‘extraterritorialism’, or Americans using their own courts to sanction companies that do not necessarily have any connections with the US.

Two similarly themed but completely separate cases have also hit US courts.

The first, the judgment for which is imminent, concerns a claim by Empagran, an Ecuadorian company, and four other claimants. The plaintiffs argued before the US Supreme Court that Hoffmann-La Roche and several vitamin producers, with which the claimants conducted business, were guilty of price-fixing in global markets.

Although some vitamins were sold in the US, the bulk were sold elsewhere. The US courts are used to handling such cases, but defendants are increasingly alleging misuse of US jurisdictional power and firing a salvo at the country’s extraterritorial powers.

Weil Gotshal & Manges, which acted in an amicus curiae (friend of the court) capacity in the Empagran case, has partners in Germany working round the clock for clients such as Bertelsmann and DaimlerChrysler. The companies are seeking to challenge the basis for being sued in the US on the grounds that they represent an overextension of US jurisdiction. Britta Grauke, Weil Gotshal’s head of litigation in Germany, is managing the work.

A third case, Sosa v Alvarez-Machain, is also catching the attention of those seeking to limit the reach of US justice. It is a human rights case in which the defendants, supported by US businessmen, made the landmark claim that the US’s Alien Tort Statute of 1789 should be removed from the US statute books.

This law, which even President Bush has attacked for its negative impact on foreign relations, enables US courts to hear grievances even though there are no US parties or connections.

According to Eversheds partner Rodman Bundy, a longstanding adviser to the Iranian government, the dispute over the act has spawned more case law on public international law than any other tranche of litigation in world history.

It is the last of the cases to come before the 23-year-old Iran-US Claims Tribunal (which, incidentally, has almost exclusively heard compensation claims brought by Americans). A successful challenge by Iran to the act would mean potentially damaging publicity for the US and seal a major victory for the EU, a vocal critic of the act since its introduction in 1996.