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On July 9, 2021, the United States Court of Appeals for the Second Circuit issued a summary order affirming the decision issued by the United States District Court for the Southern District of New York granting a partial final judgment against Venezuela’s state owned oil company, PDVSA Petroleo, S.A. (“PDVSA”), relating to its default on a $150 million Note issued by Plaintiff, Dresser-Rand Company (“Dresser-Rand”).

The Note Agreement which PDVSA failed to pay under specifically stated that payment was “absolutely, irrevocably, and unconditionally guaranteed,” and “the obligations of the Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason.”  The Note Agreement further stated that the obligations of the Guarantor (PDVSA) were not subject to any “defense or setoff, counterclaim, recoupment or termination, whatsoever by reason of the invalidity, illegality or unenforceability of any of the guaranteed obligations.”  The Second Circuit reviewed the language contained in the Note Agreement in accordance with New York law which holds that a contractual guarantee stated by plain terms, in broad, sweeping and unequivocal language may foreclose any challenge to the enforceability and validity of the documents which establish a defendant’s liability for payments arising under an agreement as well as any other possible defenses.

PDVSA sought to argue in the Second Circuit that it could not have waived impossibility or illegality of performance as a defense because U.S. Sanctions prohibited PDVSA from making payments to Dresser-Rand absent a license granted by OFAC.  PDVSA further argued that the U.S. Sanctions blocking transactions between U.S. entities and PDVSA made it legally impossible for it to pay under the Note Agreement after it first defaulted on its payments in 2019.

The Second Circuit held that in view of the plain and broad language contained in the Note Agreement, PDVSA’s wavier of defenses in the Note Agreement, and the established enforceability of such provisions in New York, PDVSA had waived its impossibility defense.  The Second Circuit also held that by failing to timely raise the impossibility defense in the District Court, PDVSA forfeited its argument that its breach of the Note Agreement was excused for reasons of public policy and the potential illegality of making payments due to the U.S. sanctions in place at the time of default.

To read a copy of the Summary Order, please click here.

If you have any questions, contact us at info@chaloslaw.com

As previously reported, there is a split in U.S. courts on the issue of whether a district court may order a person or entity in its district to give discovery (either documents or a deposition) for use in a foreign private arbitration pursuant to 28 U.S.C. § 1782. The Fourth and Sixth Circuit Courts of Appeals have held that the statute permits the use of the discovery tool even when the underlying proceeding is a foreign private arbitration. The Second, Fifth, and Seventh Circuit Courts of Appeals have ruled that private arbitral bodies are not “tribunals” under the statute and therefore the use of Section 1782 is not permitted in aid of a foreign arbitration. The U.S. Supreme Court has only addressed Section 1782 once in a decision from 2004, but that matter did not specifically address the question of whether discovery was permissible for use in a foreign arbitration. However, the U.S. Supreme Court did write that the “tribunal” definition in the statute was “unbounded by categorical rules” and quoted from a 1965 law review article by Professor Hans Smit which stated that the legislative history of the statute intended to include “arbitral tribunals.” Intel Corp. v. Adv. Micro Devices, Inc., 542 U.S. 241 (2004). The Court’s dicta in the Intel Corp. decision led to many different results in the lower courts around the United States.

Given the split of authority among the Circuit Courts on the issue, the U.S. Supreme Court granted certiorari on March 22, 2021 in the case arising from the Seventh Circuit Court of Appeals. Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794. The petitioner and respondents have filed their respective opening briefs on the merits of the appeal and numerous third parties have filed amicus curiae briefs for the Supreme Court’s consideration on the issue. On June 28, 2021, the United States of America, through the Solicitor General’s office filed an amicus curiae brief in support of the respondents. The government argued that the United States has a substantial interest in the resolution of the question and application of Section 1782, because the statute plays an important role in “encouraging international cooperation, facilitating the resolution of foreign disputes, and fostering international comity.” The United States utilizes Section 1782 to present to courts letters rogatory and letters of request that are received through the Department of State or the Department of Justice. The government’s brief argues that a review of the background of the existing law and Congress’ objective in undertaking the statute’s revisions in 1964 was meant to merely put foreign quasi-judicial entities (and intergovernmental bodies) on the same footing with foreign courts. Bluntly, in no way was it meant to sweep up private, commercial foreign arbitrations into Section 1782’s ambit.

The government offers two (2) public policy arguments in further support of the position that Section 1782 does not apply to foreign private arbitration. First, that such a broad interpretation of “proceeding in a foreign or international tribunal” would create significant tension with the Federal Arbitration Act which narrowly limits available discovery in connection with arbitration. The government argues that by permitting discovery in aid of foreign arbitrations under Section 1782, parties to foreign arbitration would have broader access to court-assisted discovery than parties in domestic arbitration. In addition, the government argues that if the Supreme Court were to permit such a broad interpretation, it could potentially be used by a future party in an “investor-state arbitration.” Investor-state arbitration permits a foreign investor to arbitrate a claim directly against the government of the state in which the investment is held or was sought to be made. The government argues that investor-state arbitrations share many of the features of private commercial arbitration and it could not have possibly been the intent of Congress to have Section 1782 apply to treaty-based investor-state arbitration when it enacted the language in the 1964 version of Section 1782, because that type of arbitration did not exist. Furthermore, the government argues that permitting Section 1782 discovery in investor-state arbitrations would jeopardize the predictability and efficiency of those types of arbitrations.

The United States has requested ten (10) minutes of argument time at the upcoming oral argument, which has not yet been set by the Court. Respondents have agreed to cede ten (10) minutes from its oral argument time to the government. It is anticipated that oral argument will be set during the fall October 2021 Term. It is unlikely a decision will be issued prior to December 2021 at the earliest, and most likely not until the first half of 2022.

A copy of the amicus curiae brief by the United States, can be found here.

If you have any questions, contact us at info@chaloslaw.com

Reuters is currently reporting that Iran claims the United States has agreed to remove all sanctions on Iran’s insurance, oil, and shipping industries.  Iran also claims the U.S. is planning to remove a number of high-ranking officials from the U.S. Specially Designated Nationals list (SDN).  The U.S. and five (5) other world powers have been in talks with Iranian officials since April to work towards restoring the 2015 Joint Comprehensive Plan of Action (“JCPOA”).  The talks remain ongoing in Vienna.

We are closely monitoring the situation and will provide further updates when there is official U.S. regulatory action to report.

For more information, please contact us at info@chaloslaw.com

On April 19, 2021, New York Chief Judge Janet DiFiore issued a message requiring all judges and court staff, including clerks, officers, and other employees, to return to in-person work effective Monday, May 24, 2021. The order comes on the heels of the state of New York resuming civil and criminal jury trials on March 22, 2021. The return to in-person work for all staff marks the end of the work-from-home measures which had been in place for fourteen (14) months. As part of the press release, Chief Judge DiFiore stated: “It is time to return to our normal and full courthouse staffing levels in order to support the fuller resumption of in-person operations, including jury trials and other proceedings in our courts.”

Notwithstanding the return to in-person work for staff, New York courts will continue to utilize virtual and telephonic court proceedings developed and implemented in response to the coronavirus pandemic.   Chief Judge DiFiore confirmed that plans are being drafted to ensure protocols for the effective use of technology for conferences and hearings (which do not require in-person attendance by attorneys and parties) are in place so as to limit the number of people in the state courthouses to maintain safe occupancy levels.   The return of normal operations is both welcome and critical, as Judges and staff attempt to dig out from the backlog of cases caused by the pandemic.

For more information, please contact us at info@chaloslaw.com.

On March 4, 2021, the United States Court of Appeals for the Ninth Circuit issued an opinion reversing the conviction of Defendant James P. Lucero under the Clean Water Act (the “CWA”) and remanding the case to the United States District Court for the Northern District of California for a new trial. Lucero was charged with three (3) counts of knowingly discharging a pollutant near the San Francisco Bay in violation of the CWA.  A jury found Lucero guilty on all three counts and he was sentenced to thirty (30) months in prison. Lucero appealed his conviction to the Ninth Circuit and argued for reversal of the conviction on the following grounds: (1) the jury instructions erroneously omitted the knowledge element contained in the CWA; (2) the definition of “waters of the United States” is unconstitutionally vague; and (3) the narrower April 2020 regulatory definition of “waters of the United States” should be applied retroactively to his case.

As for the first challenge to the conviction, the government argued that the knowledge requirement under the CWA should be interpreted to extend only to the phrase “into water” and not to “waters of the United States.” In a split 2-1 decision, the Ninth Circuit agreed with the government’s position, holding that Congress intended the broadest possible protection against water pollution. The Court held that the phrase “waters of the United States” is simply a jurisdictional element to connect the CWA to Congress’s powers under the Commerce Clause and to confine the constitutional boundaries without extension to every “water” in the United States.  Circuit Judge Bade dissented in this portion of the decision, holding: “the ‘waters of the United States’ element substantively defines the discharge prohibition because it plays an integral role in ‘defin[ing] the evil Congress seeks to prevent’ through the CWA, no other statutory or regulatory provision can plausibly substitute for it in this role, and the majority’s chief reason not to read both “waters of the United States” and “into water” (substantively—the rule against surplusage—), is unconvincing given the use of the definitional provisions across the CWA.”

Although the Court agreed with the government’s interpretation of “knowingly,” the Ninth Circuit held that reversal and remand is necessary because the jury instructions failed to adequately convey the knowledge element to the jury. The Court noted that the government had the burden to prove that Lucero knew he was discharging the pollutants “into water.”  The Court interpreted the CWA to require that for a defendant to knowingly add a pollutant, the defendant “must know that he discharged an enumerated substance from a conveyance, and that the substance was discharged into water.” To require knowledge by a defendant of dumping “into water” is to ensure that a defendant knows he is committing a crime targeted by Congress. The Ninth Circuit further held that the jury instruction erroneously omitted the CWA’s mens rea element and provided that nowhere in the instruction did it indicate that Lucero had to know he discharged the pollutant “into water.” Finally, the Court held that the failure to include the knowledge element in the jury instruction was not harmless error and as such the conviction had to be reversed as a matter of law.

The remaining arguments by Lucero were rejected by the Court.  The Ninth Circuit held that the regulation defining “waters of the United States” is not unconstitutionally vague and noted that although the regulations definitions are complex, they provide an ascertainable standard for when “wetlands” and “tributaries” constitute jurisdictional waters of the United States. The Ninth Circuit also rejected the third argument made by Lucero, holding that the 2020 regulation is to be applied prospectively and is not a judicial interpretation of an existing law that is to be applied retroactively to Lucero’s case.

To read the full opinion, please click here.

For more information about the Clean Water Act or other environmental laws and regulations, please do not hesitate to contact us at info@chaloslaw.com.

On January 14, 2021, outgoing Assistant Attorney General Jeffrey Bossert Clark released a memorandum outlining the Environment and Natural Resources Division’s (ENRD) enforcement principles and priorities  for the “robust enforcement of our nation’s environmental laws.”  AAG Clark emphasized eight (8) general principles which are at the forefront of ENRD’s consideration for civil and criminal enforcement and also summarized five (5) areas which had been a priority for the Trump Administration.  Pursuant to the Trump Administration directives, ENRD was tasked with focusing on (1) clean water, clean air, and clean land; (2) maintaining the integrity of environmental programs; (3) fighting fraud and recovering taxpayer funds; (4) combating violent and organized crimes; and (5) protecting workers, competitiveness, and the infrastructure during the past administration.

AAG Clark was sworn into the role as head of the ENRD on November 1, 2018. Prior to that, he was in private practice at Kirkland & Ellis. He had also served in the ENRD during the George W. Bush Administration from 2001 – 2005.   The memorandum is a summary of the approach taken by the Justice Department’s chief environmental enforcement arm during what was often characterized  by observers as a pro-business and anti-environment Administration.  Some of the more interesting guideposts from the memorandum include the following instructions to DOJ attorneys:

• ENRD enforcement actions should be premised solely on existing legislation of the statute and not the legislative history, agency guidance documents, and/or executive order policy announcements.

• ENRD attorneys should respect the corporate form and not simply group affiliated and/or related entities together.  The ENRD “should give due respect to the policy judgment of lawmakers to create and maintain the corporate form.”

• Criminal enforcement should be rare and reserved for instances when there is a requisite and demonstrable criminal intent.  The Department must avoid unnecessary “overcharging” of crimes.

• Settlements should impose remedies consistent with applicable statutory authority and the payment of any settlement funds to third parties is prohibited (citing Attorney General June 5, 2017 Memo).  In addition, except where Congress has specifically provided otherwise, the use of Supplemental Environmental Projects (SEPs) is prohibited.  SEPs were often provided as a settlement option to an alleged environmental violator to reduce overall monetary liability by agreeing to fund an environmental project.

It can be expected that as soon as a new Assistant Attorney General for the ENRD is appointed and sworn in, a new memorandum with revised policy goals and instructions reflecting the Biden Administration will be issued.  Anticipated Attorney General Merrick Garland will certainly have a strong voice in directing the approach of the ENRD as well.  One of the first changes that may be instituted is the reintroduction of the SEP program, a policy which had been very popular during the Obama administration (and had been used for decades before that by the Environmental Protection Agency and DOJ).  There is at least one (1) lawsuit pending in the U.S. District Court for the District of Massachusetts seeking to reintroduce the program on the grounds that the Justice Department’s current interpretation and application of the law prohibiting the use of SEPs is a violation of the Administrative Procedures Act.  Underscoring the Administration’s focus on the environment, during his first day in office, President Biden has already signed executive orders to re-enter the Paris Climate Agreement and to suspend work on the Keystone XL pipeline.  It is expected that robust instructions to federal agencies to investigate and enforce Clean Air Act and Clean Water Act violation(s), among others, will also be a top priority of the Biden Administration.

A copy of the Memorandum can be found here.

For more information on administrative, civil, or criminal environmental enforcement actions, please do not hesitate to contact us at info@chaloslaw.com

We are pleased to announce that Mrs. Otero Valdés together with Corey D. Ranslem of International Maritime Security Associates, Inc. (IMSA) will be presenting via webinar at the International Underwriting Association (IUA) Market Briefing to discuss cyber security issues within the maritime industry, case studies, and the keys to cyber security planning and cyberattack “avoidance.”  The webinar will take place on January 26, 2021 at 10:00 a.m. EST.

To register for the program please click here.

For more information, please do not hesitate to contact us at  info@chaloslaw.com or mov@chaloslaw.com.

Earlier this year, we reported on the decision issued by Chief Magistrate Judge David Rush of the Western District of Missouri recommending that all federal criminal charges against the Captain (and two (2) shore-side managers) of a duck boat, which tragically sank on Table Rock Lake in Missouri in July 2018 and led to the deaths of seventeen (17) people, be dismissed for lack of admiralty jurisdiction. The government filed numerous objections to the findings of fact and conclusions of law in the Magistrate Judge’s Report and Recommendation.  Both sides filed supplemental briefing and other supporting documents for the District Court’s review.  The government’s chief argument was that the Magistrate Judge erred in holding that the navigability of Table Rock Lake was a legal issue on which prior Eighth Circuit precedent binds the Court.  Specifically, the Report and Recommendation had relied on a decades old civil case (Edwards v. Hurtel, 724 F.2d 689, 689-90 (8th Cir. 1984)), in which the district court and Eighth Circuit had taken judicial notice that the lake was recreational in nature and not used for commercial shipping and/or otherwise navigable.  The government argued that the facts of the instant criminal matter, show “that the physical characteristics of the lake can, and do, support interstate commercial shipping, and that goods and people are currently transported on the lake across state lines for profit,” are different.  The government argued that it should have been permitted the opportunity to prove its facts at trial and the prior Circuit Court precedent relied upon in the Report and Recommendation is inapplicable and non-binding based on the facts of the present case.

As the Magistrate Judge’s recommended opinion would result in the dismissal of the case if accepted, the District Court Judge was required to conduct an independent review of the record, hearing transcript, parties’ briefing, and applicable law before rendering a final decision.  On December 3, 2020 District Judge Douglas Harpool issued a single page Order adopting the Report and Recommendation in full and dismissing the case (and all charges) against the defendants for lack of admiralty jurisdiction.  No independent analysis of the government’s objections or arguments was provided by the District Court. The Clerk of the Court promptly entered the judgment closing the case. The government has since appealed the decision to the Eighth Circuit Court of Appeals.  A briefing schedule will be set by the Circuit Court for early 2021.

A copy of the Order adopting the Report and Recommendation and dismissing the case can be found here.

For any questions about the decision or to learn more about the criminalization of admiralty matters in the United States, please contact us at info@chaloslaw.com.

Article by George M. Chalos & Briton P. Sparkman featured in TradeMaker Magazine’s December 2020 edition can be viewed by clicking here.