Amicus Curiae Brief — Grupo Mexicano De Desarrollo, SA v. Alliance Bond Fund, Inc.

FEB 16 1999

No. 98-231

—

Jn the Supreme Court of the United States

OCTOBER TERM, 1998

EE —

GRUPO MEXICANO DE DESARROLLO, S.A., ET. AL.,

PETITIONERS

Vv.

ALLIANCE BOND FUND, INC., ET. AL.

RESPONDENTS

ON WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF OF AMICI CURIAE THE SECURITIES

INDUSTRY ASSOCIATION AND THE EMERGING

MARKETS TRADERS ASSOCIATION IN SUPPORT OF

RESPONDENTS

RICHARD A. ROSEN

Counsel of Record

ROBERT S. SMITH

LEWIS E. FARBERMAN

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON

Attorneys for Amici Curiae

1285 Avenue of the Americas

New York, New York 10019

(212) 373-3000

- _—_—_—- -—

BEST AVAILABLE COPY

QUESTION PRESENTED

Whether, in an action for money damages, principles of

international comity deprive a federal court of the power, under

any and all circumstances, to enjoin a foreign company that has

sold securities in the United States from dissipating its assets in

order to frustrate the enforceability of a judgment.

QUESTION PRESENTED .......6 0c eeeeeeeees i

TABLE OF AUTHORITIES .......-5 20 ee eeees iii

INTERESTS OF THE AMICI CURIAE ........... l

INTRODUCTION AND SUMMARY OF ARGUMENT. 3

I. THE RULE PETITIONERS PROPOSE

WOULD DO SERIOUS FARM TO THE

GLOBAL MARKETPLACE AND TO

UNITED STATES INVESTORS ........... 4

Il. ©THE COMITY CONSIDERATIONS

STRESSED BY THE DOMINICAN

REPUBLIC FURNISH NO REASON

FOR ADOPTING THE RULE

PETITIONERS SEEK .........6+ee005: il

A. The Issue in this Case is the Existence

of Power, not its Exercise .......... ll

B. The Injunction Issued in this Case

Did Not Violate Principles of Comity. ... 16

CONCLUSION 2... ccececcesnveeeereeees 20

TABLE OF AUTHORITIES

CASES

Airlines Reporting Corp. v. Barry,

825 F.2d 1220 (8th Cir.1987) ............ 12

Alliance Bond Fund, Inc. v. Grupo Mexicano de

Desarrollo, S.A., 143 F.3d 688

GEG Ge ot cca db od sev b's 8, 15, 18, 19

Basic Incorporated v. Levinson, 485 U.S. 224,

108 S. Ct. 978, 99 L.£d.2d 194 (1988) ...... 6

Dixie Carriers, Inc. v. Channel Fueling Service, Inc.

(In re: Fredeman Litigation),

843 F.2d 821 (Sth Cir.1988) ............. 12

Foltz v. U.S. News & World Report,

760 F.2d 1300 (D.C.Cir.198S5) ............ 12

Green v. Drexler (In re: Feit & Drexler, Inc.),

760 F.2d 406 (2d Cir.1985) .............. 12

Hoover v. Wagner, 47 F.3d 845 (7th Cir. 1995) ...... 13

Los Angeles v. Lyons, 461 U.S. 95, 103 S. Ct. 1660,

OD bw Ge Be ED ba eO beh coc eces 14

Mitsubishi Int’l Corp. v. Cardinal Textile Sales,

14 F.3d 1507 (11th Cir.1994) ............ 12

Roland Machinery Co. v. Dresser Industries, Inc.,

749 F.2d 380 (7th Cir.1984) ............. 12

iv

Securities and Exchange Commission v.

Banca Della Svizzera Italiana,

92 F.R.D. 111 (S.D.N.Y. 1981) .......

Societe Nationale Industrielle Aerospatiale v.

U.S. Dist. Court for Southern Dist. of lowa,

482 U.S. 522, 107 S. Ct. 2542,

96 L.Ed.2d 461 (1987) ............

Teradyne, Inc. v. Mostek Corp.,

797 F.2d 43 (ist Cir. 1986) ..........

Tri-State Generation and Transmission Ass'n, Inc. v.

Shoshone River Power, Inc.,

805 F.2d 351 (10th Cir.1986) ........

United States ex rel. Taxpayers Against Fraud v.

Singer Co., 889 F.2d 1327 (4th Cir.1989) .

University of Texas v. Camenisch,

451 U.S. 390, 101 S. Ct. 1830,

7 © |. fOr re

Varity Corp. v. Howe,

516 U.S. 489, 116 S. Ct. 1065,

134 L.Ed.2d 130 (1996) ............

STATUTES AND RULES

Federal Rule of Civil Procedure 64 ..........

Federal Rule of Civil Procedure 65 ..........

FOREIGN LAW

Derby & Co. v. Weldon, {1989} 1 All Eng.

Ren: 0008, 1001 AD ......... 9, 11, 14, 15

James v. Merrill Lynch Internat’! Bank Lid,

{1998} 1 S.L.R. 785 (C.A.) 2... eee eee eee

Mareva Compania Naviera S.A. v.

International Bulkcarriers S.A.,

[1975] 2 Lloyd’s Rep. SO9(C.A.) .........

Mooney v. Orr, {1994} 1994 ACWSJ LEXIS 10688, *3

Ge: Sap. Ghd < & sian AUR ATCA Sines ce

Nat'l Australia Bank Ltd v. Bond Brewing Holdings Lid,

[1991] 1 V.R. 386 (Victoria App. Div.) ......

Natural Gas Corp. Holdings Ltd v. Grant,

[1994] 2 N.Z.L.R. 252 (H.C. Auckland) .....

Orwell! Steel (Erection and Fabrication) Ltd. v.

Asphalt and Tarmac (U.K.) Ltd,

[1984] | W.L.R. 1097 (Q.B.D.) ..........

The Tuyuti, {1984} 2 Lloyd’s L.R. SI(C.A.) .......

OTHER AUTHORITY

1998 Securities Industry Association Fact Book (1998)

Department of the Treasury, Financial Management

Service, Treasury Bulletin, Table CM-V-5

GOOUOMRET TEUEP cece eee tee. seer

a

7

vi

Department of the Treasury, Financial

Service, Treasury Bulletin, Table CM-V-4

i Ce

Department of the Treasury, Financial Management

Service, Treasury Bulletin, Table CM-D

i arty capa eg alien

(published by the International Financial

J. O'Hare and R. Hill, Civil Litigation (8th ed. 1997)

10, 15

INTERESTS OF THE AMICI CURIAE”

The Securities Industry Association ("SIA") brings

together the shared interests of more than 750 securities firms

throughout North America. SIA members — _ including

investment banks, broker-dealers, specialists, and mutual fund

companies — are active in all markets and in all phases of

corporate and public finance. In the United States, SIA members

employ approximately 400,000 individuals. SIA member firms

manage the accounts of more than 50 million investors directly,

and tens of millions of investors indirectly, through corporate,

thrift, and pension plans. The U.S. securities industry accounts

for $270 billion of revenues in the U.S. economy.

The Emerging Markets Traders Association (““EMTA”)

is a New York based not-for-profit organization that promotes

greater efficiency, professionalism and transparency in the

trading of emerging markets debt instruments. EMTA was

formed in 1990 by a group of global financial institutions in

response to the new trading opportunities presented by the Brady

Plan, a United States policy relating to debt obligations owed by

foreign sovereigns. EMTA now has approximately 140 member

institutions worldwide, including substantially all of the major

commercial and investment banks that actively trade emerging

markets debt instruments in the secondary markets.

Y The parties have consented to the filing of this amicus curiae brief

and letters indicating their consent have been filed with the Clerk of the

Court. No party, nor any party’s counsel, authored any part of this brief

nor has any person or entity other than the amici curiae made a monetary

contribution to the preparation and submission of this brief. Several

respondents or their affiliates or officers are members of the Securities

Industry Association and/or the Emerging Markets Traders Association.

SIA and EMTA submit this amicus curiae brief to assist

the Court in determining whether Federal Rule of Civil

Procedure 65 permits a district court in an action for money

damages to enjoin a party from disposing of assets so as to

frustrate an eventual judgment. This amicus brief will focus on

this question in the specific context of international capital

markets transactions like the one involved in the present case.

The wealth of experience SIA has acquired in the securities field,

and in international securities transactions in particular, and

EMTA’s extensive knowledge and interest in foreign debt

transactions render the associations uniquely qualified to provide

the Court with information and comment relevant to this topic.

INTRODUCTION AND SUMMARY OF ARGUMENT

The purpose of this amicus brief is to demonstrate the

following two points:

1. | The rule proposed by petitioners, that a federal court

in an action at law for money damages lacks power to enjoin a

defendant’s dissipation of assets, would, if adopted, do serious

harm to global capital markets and to United States investors in

those markets. Investments by United States citizens in equity

and debt offerings by foreign issuers are of growing importance

to this country and to the world. To deprive United States

investors of the kind of remedy granted here would increase the

risk and cost associated with such transactions and would create

a serious disincentive to investments in entities whose assets are

overseas. Indeed, reversal of the decision below would often

leave some creditors with no effective remedy and would render

nugatory the contractual protections for which United States

investors normally bargain. The need for injunctive relief to

prevent the dissipation of assets in a proper case has been

recognized by English and other courts for sound reasons that

justify taking a similar approach in this country.

2. The considerations of international comity discussed

in the amicus curiae brief of the Dominican Republic furnish no

reason for adopting the law-equity distinction that petitioners

advocate. The issue here is the power to issue an injunction;

considerations of comity bear only on whether such an injunction

should be issued in a particular case. Comity can and should be

taken into account, together with all other equitable

considerations, when an injunction against the dissipation of

assets is sought. Here, the district judge properly weighed

comity as well as other factors, and reached a correct result.

ARGUMENT

I. THE RULE PETITIONERS PROPOSE WOULD DO

SERIOUS HARM TO THE GLOBAL

MARKETPLACE AND TO UNITED STATES

INVESTORS.

Petitioners’ argument is, in essence, that Rules 64 and 65

of the Federal Rules of Civil Procedure codify the ancient

distinction between law and equity, and thus prohibit the use of

an injunctive remedy to prevent dissipation of the defendant’s

assets in an action at law. Such an injunction, petitioners

contend, may be issued only “when a plaintiff, in an action for

equitable relief, seeks an injunction with respect to the same res

or thing that is the subject ct its underlying claim." Brief for

Petitioners at 10. Petitioners say that because this action, which

seeks damages for breach of contract, would historically have

been classified as legal rather than equitable, only attachment and

other traditional common-law means of securing satisfaction of

a judgment can be employed. The Second Circuit’s opinion

contains a well-considered analysis of the text and history of

Rules 64 and 65, as well as of the decisions of this Court and

lower-court precedents that refute petitioners’ theory of an

impenetrable barrier between law and equity.

Because these issues will doubtless be discussed in detail in

respondents’ brief, this amicus brief will focus on the policy

considerations that also support respondents’ position in this case.

If this Court should decide, as petitioners ask, that the equitable

powers of a federal district judge do not, in the relevant respect,

exceed the powers of a medieval Chancellor, the consequences

would be most unfortunate for today’s global marketplace and

United States participants in it.

The importance of international capital transactions in

which foreign entities raise capital in the United States securities

markets is enormous. In 1997, non-United States issuers

registered over $100 billion in securities for public offering in

the United States. More than 1,000 companies from 55 countries

had SEC reporting obligations in the United States by the end of

1997, the last year for which statistics are available. Mark S.

Bergman, 1999 Capital Markets Yearbook, 24 (published by the

International Financial Law Review).

But foreign registrants represent only a small portion of

foreign equity trading. In 1997, the value of global equity

trading hit $19.5 trillion, a 43% increase over the record $13.6

trillion traded in 1996; markets in the United States accounted

for 52.4% of that trading. See 1998 Securities Industry

Association Fact Book, 75 (1998). Moreover, gross sales of

foreign bonds by foreigners to U.S. residents exceeded $1.999

trillion and gross sales of foreign stocks and bonds together

exceeded $2.295 trillion. See Department of the Treasury,

Financial Management Service, Treasury Bulletin, 94-95, Table

CM-V-5 (December 1998). Over $15.6 billion in Mexican

bonds alone were sold to residents of the United States in 1997.

See id. Between 1994 and 1997, United States residents

increased their net purchases (purchases minus sales) of foreign

bonds by 422%. See id. at 96, Chart CM-D.

The growt’: in international capital transactions has brought

and continues to bring enormous benefits to United States

investors and to people all over the world. For investors in this

country, of course, this trend has given rise to greater

opportunities for diversification and higher yields than are

available through instruments sold exclusively by United States

issuers. From the foreign issuers’ perspective, in many

countries, including those lately emerged or still emerging from

conditions of dire poverty, capital for development is now

a i

available on an unprecedented scale. The home countries of

issuers that are now benefiting from access to the United States’

capital markets include Colombia, Malaysia, Lebanon, Liberia,

Zaire and Syria. See Department of the Treasury, Financial

Management Service, Treasury Bulletin, 92-93, Table CM-V-4

(December 1998)” It is surely in the interests of both the United

States and the developing world to foster the growth of these

markets by assuring that participants in them have the benefit of

modern and effective legal remedies.

Today’s international capital markets are extraordinarily

"efficient" in two senses of the term. First, they are efficient in

the speed at which transactions can be accomplished. Literally

billions of dollars can be moved from one country to another

almost instantaneously, by computer transmission. The markets

are also "etficies.t" in their assessmen! of information ~clevant to

risk. Cf Basic Incorporated v. Levinson, 485 U.S. 224, 246-47

& n.24 (1988) (recognizing that “[rjecent empirical studies have

tended to confirm Congress’ premise that the market price of

shares traded on well developed markets reflects all publicly

available information”). Investors calculate their risks with great

precision, and insist on a return on investment that compensates

them for that risk. This means that anything that needlessly

¥ The list of emerging market countries whose nationals have sold

securities in the United States in 1997 alone includes: Argentina,

Baharms, Bermuda, Bosnia, Brazil, British West Indies, Bulgaria, Chile,

Colum*ia, Croatia, Czech Republic, Ecuador, Egypt, Ghana, Guatemala,

Herz-govina, Hungary, Indonesia, Israel, Jamaica, Lebanon, Liberia,

Malaysia, Mexico, Montenegro, Morocco, Netherlands Antilles,

Palestine, Panama, People’s Republic of China, Peru, Philippines,

Poland, Remania, Russia, Serbia, Singapore, Slovenia, Syria, Thailand,

Trinidad and Tobago, Turkey, Uruguay, Venezuela, and Zaire. See

Department of the Treasury, Office of Financial Management, Treasury

Bulletin, 92-93, Table CM-V-4 (December 1998).

increases investors’ risks increases the cost of raising money in

the United States capital markets and makes it that much more

difficult for those markets to perform their function.

The power of courts in the United States to grant injunctive

relief against the dissipation of any assets, wherever located, is

an important underpinning of the legal regime in which

international capital markets operate. The situation that the

District Judge in this case sought to remedy — the choice by an

insolvent Mexican entity to pay its Mexican creditors while

leaving its obligations to United States citizens unpaid — is

certainly not an every-day occurrence. But the risk of such

conduct for potential investors in the equity or debt securities of

a foreign issuer is palpable and must be factored into every

transaction.

When a foreign issuer does default and then dissipates its

assets, petitioners concede that attachment and similar remedies

will generally be useless, since the debtor’s assets will be located

in foreign countries, or can be moved to foreign countries in a

matter of seconds. And when the debtor and its assets are

outside the country, the United States bankruptcy laws are not

effective to prevent discrimination among creditors, as they are

in disputes with United States parties on both sides.

Even sophisticated investors cannot adequately protect

themselves through contract. After all, here respondents were

induced to invest through promises by the issuer to submit to the

personal jurisdiction of the United States courts and to treat the

United States investors on a pari passu basis with its unsecured

home country creditors. See Alliance Bond Fund, Inc. v. Grupo

Mexicano de Desarrollo, S.A., 143 F.3d 688, 691 (2d Cir.

1998); see also Joint Appendix (“J.A.”) 12, 90. Yet such

contractual provisions would prove completely unavailing against

any financially beleaguered foreign issuer which, out of

dishonesty or by virtue of local political and economic pressures,

decides systematically to favor local creditors. When the

problem of discrimination in favor of the debtor’s home-country

creditors arises, it can be dealt with effectively only by the sort

of injunctive relief that the District Court granted.

If this Court were to conclude that the narrowly-tailored

remedy fashioned by the District Court here is never available,

on any set of facts, to United States investors, some investors

will conclude that overseas investment is imprudent, and many

will demand a higher rate of return to compensate for the

increased risk of uncollectibility. This will foreseeably

curtail—and in some cases altogether deny—access to the United

States capital markets by foreign issuers on reasonable economic

terms.

The practical importance of this kind of injunctive relief is

reflected in the development over the last twenty years of the so-

called Mareva injunction in England and other countries of the

British Commonwealth. In Mareva Compania Naviera S.A.

v. International Bulkcarriers S.A., [1975] 2 Lloyd’s Rep. 509

(C.A.), the Court of Appeals of England held:

If it appears that the debt is due and owing -- and

there is a danger that the debtor may dispose of his ;

assets so as to defeat it before judgment -- the Court

has jurisdiction in a proper case to grant an

interlocutory judgment so as to prevent him disposing

of those assets.

Mareva, 2 Lloyd’s Rep. at 510.

Although initially Mareva injunctions were available only

for assets located within the court’s jurisdiction, the English

courts later recognized that, since an injunction is premised on

in personam and not in rem jurisdiction, the Mareva holding is

equally applicable to prevent dissipation of assets located outside

the country. See, e.g., Derby & Co. v. Weldon, [1989] 1 All

Eng. Rep. 1002, 1011 (C.A.); Orwell Steel (Erection and

Fabrication) Ltd v. Asphalt and Tarmac (U.K.) Ltd, [1984] 1

W.L.R. 1097, 1100 (Q.B.D.); The Tuyuti, [1984] 2 Lloyd’s

L.R. 51, 56 (C.A.).

Courts in Commonwealth countries other than England

have followed England’s lead in adopting the Mareva-type

injunction. See, e.g., Natural Gas Corp. Holdings Ltd v. Grant,

[1994] 2 N.Z.L.R. 252 (H.C. Auckland) (New Zealand court

noting in dicta that Mareva injunction having “world-wide” effect

was properly issued); Mooney v. Orr, [1994] 1994 ACWSJ

LEXIS 10688, *3 (B.C. Sup. Ct.) (Canadian court noting that

“defendants obtained a world-wide Mareva injunction . . .” in

deciding issue relating to whether the court had power to order

certain disclosures); Nat'l Australia Bank Ltd v. Bond Brewing

Holdings Ltd, {1991} 1 V.R. 386 (Victoria App. Div.)

(Australian court issuing a Mareva injunction and appointing a

receiver over foreign assets); James v. Merrill Lynch Internat'l

Bank Lid, {1998} 1 S.L.R. 785 (C.A.) (Singapore court noting

that a “world-wide” Mareva injunction had been obtained in both

Singapore and Hong Kong and appointing receiver over foreign

assets); see also Mealey’s International Arb. Report, Vol. 9,

No. 9 (Sept. 1992) (reporting issuance of Mareva injunction in

Hong Kong arbitration).

Thus, the courts of the country in which the distinction

between law and equity originated have taken the lead in

recognizing that the general principles of equity jurisdiction, not

the ancient boundary between legal and equitable cases, should

govern the issuance of an injunction. The standard for issuing

Mareva injunctions in England is not a technical one, but

incorporates the same equitable principles familiar to United

10

States judges in dealing with applications for injunctive relief.

The Mareva standard is summarized in a leading treatise as

follows:

(1) whether the plaintiff has a good arguable case;

(2) whether the plaintiff can adduce sufficient evidence

as to the existence and location of assets which the

injunction, if made, would affect; and

(3) whether there is a real risk that the defendant may

deal with those assets so as to render nugatory any

judgment which the plaintiff may obtain.

J, O'Hare and R. Hil', Civil Litigation, 296 (8th ed. 1997).

The development of the Mareva injunction was founded in

part on a recognition that it is suited to the needs of participants

in modern business transactions. As the English Court of

Appeals stated:

We live in a time of rapidly growing commercial and

financial sophistication and it behooves the courts to

adapt their practices to meet the current wiles of

those defendants who are prepared to devote as much

energy to making themselves immune to the courts

orders as to resisting the making of such orders on

the merits of their case.

Derby, 1 All Eng. Rep. at 1007.

The position of the petitioners in this case is that the

Federal Rules of Civil Procedure deprive Uniied States District

Courts of the flexibility to “adapt their practices” to this era of

“rapidly growing commercial and financial sophistication." But

the rules can not fairly be read to impose any such strait jacket

on United States District Courts. If the rules were so read, the

result would be a significant adverse impact on international

global markets and on the participation of United States investors

in those markets.

Il. THE COMITY CONSIDERATIONS STRESSED BY

THE DOMINICAN REPUBLIC FURNISH NO REASON

FOR ADOPTING THE RULE PETITIONERS SEEK

A. The Issue in this Case is the Existence

of Power, not its Exercise.

The amicus brief of the Dominican Republic argues that a

result in favor of respondents here would violate principles of

international comity — a contention not raised by petitioners

either in the District Court or in the Court of Appeals. This

argument is based on a misunderstanding of the issue before this

Court, which is simply whether the Federal Rules of Civil

Procedure authorize a District Judge to issue an injunction like

the one entered in this case. If a District Judge has power to

issue such an injunction, principles of international comity may,

in some cases, cause him or her to refrain from exercising that

power. But principles of international comity cannot rationally

support a holding that the power does not exist.

The legal issue of a District Court’s power to issue an

injunction against the dissipation of assets in an action for money

damages is the same whether the dispute is international or not.

To be sure, such injunctions are especially important to the

predictability and efficiency of international business transactions.

But if petitioners’ theory is upheld, a District Judge sitting in

New York could not issue such an injunction even where the

defendant is a United States citizen and the asset in question is

a bank account in Delaware. Indeed, most of the prior Court of

12

Appeals cases considering this question involved transactions and

assets within the United States.” It would be strange indeed if

considerations of international comity disabled a District Court

from issuing this kind of injunction in such purely domestic

disputes.

The Dominican Republic appears to suggest that the issue

of a District Court’s power to enter an injunction may turn on

whether the dispute is a domestic or international one — i.e., that

Rules 64 and 65 of the Federal Rules of Civil Procedure should

be read to prohibit injunctions against dissipation of assets in

international cases, whether or not they are so read in a domestic

context. Such a distinction is without any support in the

language of the rules themselves, their legislative history or any

decision interpreting them. But beyond that, such a distinction

would be both unwise and unnecessary. It would be unwise for

the reasons siated in Point I above: It is important to the

international capital markets, and to United States participants in

those markets, that such a remedy be available where needed.

And it is unnecessary because principles of international comity

can and will be taken into account by Di «rict Courts in deciding

¥ See Teradyne, Inc. v. Mostek Corp., 797 F.2d 43, 52-53 (1st Cir.

1986); Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380,

386 (7th Cir. 1984); Folrz v. U.S. News & World Report, 760 F.2d 1300,

1309 (D.C.Cir.1985); Green v. Drexler (In re: Feit & Drexler, Inc.),

760 F.2d 406, 416 (2d Cir.1985); United States ex rel. Taxpayers Against

Fraud v. Singer Co., 889 F.2d 1327 (4th Cir.1989); Airlines Reporting

Corp. v. Barry, 825 F.2d 1220, 1227 (8th Cir.1987); Tri-State

Generation and Transmission Ass'n, Inc. v. Shoshone River Power, Inc.,

805 F.2d 351, 355 (10th Cir.1986); Dixie Carriers, Inc. v. Channel

Fueling Service, Inc. (In re: Fredeman Litigation), 843 F.2d 821, 824

(Sth Cir.1988); Mitsubishi Int'l Corp. v. Cardinal Textile Sales, 14 F.3d

1507 (11th Cir. 1994).

13

whether to issue injunctions in specific cases, and by Courts of

Appeals in reviewing those decisions.

The mere existence of power does not mean that it must be

exercised in every case. No one disputes the basic principle,

stated in the Dominican Republic’s brief, that "the exercise of

judicial power beyond a court's national boundaries must be

constrained by principles of comity." Brief of Amicus Curiae

the Dominican Republic in Support of Petitioners ("Dom. Rep.

Br.") at 6 (emphasis added). In deciding whether to grant an

injunction a court of equity is always constrained by, among

other things, the impact that an injunction would have upon the

public interest. See, e.g., University of Texas v. Camenisch, 451

U.S. 390, 392, 101 S.Ct. 1830, 1832, 68 L.Ed.2d 175 (1981).

Among the public interests to be weighed, the principle of

comity may be an important one. Cf. Hoover v. Wagner, 47

F.3d 845, 850 (7th Cir. 1995) (holding in context of

federal/state concerns that “[e]quitable remedies are powerful,

and with power comes responsibility for its careful exercise.

These remedies can affect nonparties to the litigation in which

they are sought; and when, as in this case, they are sought to be

applied to officials of one sovereign by the courts of another,

they can impair comity, the mutual respect of sovereigns . . .”);

see also Los Angeles v. Lyons, 461 U.S. 95, 112, 103 S. Ct.

1660, 1670- 71, 75 L.Ed.2d 675 (1983).

Where comity counsels against such an injunction, it should

not be issued. As an English court stated in discussing whether

to issue a Mareva injunction, the essential issue is:

whether in particular circumstances the grant [of a

preliminary injunction] is right or just. What changes

is not the power or the principles but the

circumstances, both special and general, in which

courts are asked to exercise this jurisdiction. This

14

can and does call for changes in the practice of the

courts.

Derby, 1 All Eng. Rep. at 1007.

Indeed, the very existence of the Mareva injunction in

England and other countries undermines the Dominican

Republic’s argument that injunctions against the dissipation of

assets in foreign countries are intrinsically an infringement of

principles of comity. English and other courts have granted such

injunctions in proper cases without noticeable damage to the

fabric of international relations. The Court of Appeals in this

case noted that it was "impressed" by the English experience of

the past twenty years, as supporting the Court of Appeals’

conclusion that the “>.rade of horribles" foretold by petitioners

mimes e Hersam Alliance Bond Fund, 143 F.3d at

The Dominican Republic seeks to brush off the Mareva

injunction practice in a footnote, stating that the issuance of such

injunctions “has been limited to a few extraordinary cases,

typically involving fraud." (Dom. Rep. Br. at 21 n.13). This

is not an accurate summary of the English practice. As noted

above, the English courts base Mareva injunctions on traditional

equitable principles, and fraud is not an essential element of the

required showing, although “a real risk that the defendant may

deal with . . . assets so as to render nugatory any judgment” is

required. O’Hare and Hill, Civil Litigation at 296.

It is quite true, however, that the English courts do not

issue Mareva injunctions lightly. Indeed, one such Court noted

in the course of weighing a Mareva injunction:

Considerations of comity require the courts of this

country to refrain from making orders which infringe

15

the exclusive jurisdiction of the courts of other

countries.

Derby, 1 All Eng. Rep. at 1011. Nor do respondents or the

amici supporting them suggest that District Courts should lightly

issue the kind of injunction at issue in this case. We do contend

that the District Courts have power to issue such injunctions —

a contention that the Dominican Republic brief does nothing to

refute.

B. The Injunction Issued in this Case

Did Not Violate Principles of Comity.

As we understand it, the question of whether the particular

injunction issued by the District Court here was in violation of

principles of comity is not before this Court. This fact-specific

issue was not raised below, was not presented by the petition for

certiorari, is not the subject of any conflict among the Circuit

Courts of Appeal, and would not be an appropriate subject for

this Court’s discretionary exercise of its powers of review. If

the Court should find it appropriate to reach that question,

however, it should conclude that the decision of the District

Court, affirmed by the Court of Appeals, was well within the

District Court’s discretion, and that no principle of comity was

violated.

Contrary to the picture painted by the Dominican

Republic’s brief, the District Judge in this case was careful to

respect Mexican sovereignty. Indeed, he rejected a suggestion

by respondents that a trust be imposed on property located in

Mexico, stating that the Court was not prepared “to start running

things in Mexico." Petitioners’ Appendix 30a, 37-39a. The

District Judge required only that the defendants refrain from

dealing with their assets in Mexico in such a way as to nullify

the effect of a United States judgment. Powerful equitable

16

considerations supported his decision to grant such relief on the

facts of this case:

(1) The defendants, while they are Mexican citizens,

chose to raise $250 million through an offering of 84%

Guaranteed Notes in the United States pursuant to Rule 144A

under the Securities Act of 1933. It is well established that a

foreign citizen who takes advantage of United States markets

must conform its conduct to the dictates of United States law.

See, e.g., Securities and Exchange Commission v. Banca Della

Svizzera Italiana, 92 F.R.D. 111, 117 (S.D.N.Y. 1981) (holding

that Swiss corporation could be compelled to comply with

discovery even though disclosure violated Swiss law and noting

that “(t]he strength of the United States interest in enforcing its

securities laws to ensure the integrity of its financial markets

Cainot sericusly be doubted”). Cf Societe Nationale Industrielle

Aerospatiale v. U.S. Dist. Court for Southern Dist. of lowa, 482

U.S. 522, 544 & n.29, 107 S.ci. 2542, 2556 & n.29 (1987).

This commonly accepted principle applies even in cases, unlike

this one, where there is a real tension between United States and

foreign law. Thus, foreign defendants can be compelled to make

disclosures which they contend would violate the laws of their

home countries. See id. No such conflict between United States

and foreign law arises in this case.

(2) The petitioners expressly submitted themselves—in the

instruments by which they raised $250 million—to the

jurisdiction of United States courts. Thus, in order to obtain a

large infusion of capital, petitioners led vespondents to expect

that, in any proceeding to enforce petitioners’ obligations,

respondents would have available to them the same legal

remedies that would be available against a domestic borrower.

There is no inequity or violation of comity in enforcing that

expectation.

17

(3) Having consented to United States jurisdiction,

petitioners committed exactly the sort of act which would lead

creditors in respondents’ position to insist on invoking United

States jurisdiction: Petitioners distributed their assets to Mexican

creditors in preference to United States creditors, even though

the Mexican and United States claims of unsecured creditors

were to have been treated pari passu, and even though petitioners

had agreed that assets pledged to such other creditors would be

ratably pledged to the United States creditors. See Alliance Bond

Fund, 143 F.3d at 691.

(4) Petitioners affirmatively misled respondents about

their dissipation of assets. As the Second Circuit noted, they

disclosed for the first time during a hearing before the District

Court that they had pledged between $214 and $238 million of

the Mexican Government notes to Mexican creditors - not the

$117 million they had previously sworn to in an affidavit. Jd. at

697.

(5S) Petitioners made no attempt to invoke bankruptcy or

other insolvency laws in Mexico. It may be that, where such

laws are invoked, a United States court should ordinarily

consider leaving the rights of the parties to adjudication in the

foreign forum. Indeed, in at least some instances United States

creditors will not want to interfere with foreign bankruptcy

proceedings, which may be the best way to assure fair treatment

of all creditors. But the District Court’s injunction here did not

interfere with any foreign proceedings, because there were none.

On the contrary, the District Court’s order expressly states:

{N]Jothing contained herein shall prohibit [GMD] from

commencing any insolvency proceedings under

applicable law.

J.A. 75, 77

(6) Petitioners acted in bad faith. The District Court was

clearly of this view, and tie Court of Appeals concurred that

petitioners’ actions were “less than benign." Alliance Bond

Fund, 143 F.3d at 697. The Dominican Republic brief simply

ignores the factual findings of the courts below, although this

Court has stated that such findings should be respected. See,

e.g., Varity Corp. v. Howe, 516 U.S. 489. 498, 116 S.Ct. 1065,

1071 (1996).

In sum, the District Court and the Court of Appeals for the

Second Circuit gave ample deference to the principles of

international comity. The injunction issued here was not an

abuse of discretion.

19

CONCLUSION

The judgment of the Court of Appeals should be affirmed.

Dated: February 16, 1999

New York, New York

RICHARD A. ROSEN pare

Counsel of Record

ROBERT S. SMITH

LEWIS E. FARBERMAN

PAUL, WEISS, RIFKIND, WHARTON

& GARRISON

Attorneys for Amici Curiae Securities

Industry Association and Emerging

Markets Traders Association

1285 Avenue of the Americas

New York, New York 10019

(212) 373-3000