Reply Brief — Pan American Energy, LLC v. Candlewood Timber Group, LLC

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No. 04-778 LOFFICE OF thir CLERK |

IN THE

Supreme Court of the United States

PAN AMERICAN ENERGY, LLC,

Petitioner,

Vv.

CANDLEWOOD TIMBER GROUP, LLC, AND

FORESTAL SANTA BARBARA SRL,

Respondents.

On Petition for a Writ of Certiorari

To The Supreme Court of Delaware

REPLY BRIEF OF PETITIONER

CARTER G. PHILLIPS*

STEPHEN B. KINNAIRD

MICHAEL C. SOULES

SIDLEY AUSTIN BROWN &

WOOD LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

Counsel for Petitioners

January 25, 2005 * Counsel of Record

-WitSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20001

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES oo.......cc.cccscceccssessccacececoasec, i

REPLY BRIEF OF PETITIONER .........ccccccccccccececceceeees |

I. THIS COURT HAS JURISDICTION TO HEAR

WARNE TT RE ssseciechisaniisnticnias obisadtnibuiacitactee 2

. Il. REVIEW IS NECESSARY TO RESOLVE A

CONFLICT ON THE IMPORTANT FEDERAL

ISSUE OF WHETHER STATE COURTS MAY

EXERCISE JURISDICTION THAT IMPAIRS

FOREIGN SOVEREIGN INTERESTS................... 7

a Tt! ICE Sn Dt TN a Te eR eee 10

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~ TABLE OF AUTHORITIES

CASES Page

Abie State Bank v. Weaver, 282 U.S. 765 (1931) ... 3

Banco Nacional de Cuba v. Sabbatino, 376 U.S.

WO PI iiss. cicocrsontetredtcantdamaamane 2

Cox Broad. Corp. v. Cohn, 420 U.S. 469 (1975)... 1,4

First Nat'l City Bank v. Banco Para El Comercio

Exterior de Cuba, 462 U.S. 611 (1983)............... 2

Flanagan v . United States, 465 U.S. 259 (1984)... 6

Heath vy. Alabama, 474 U.S. 82 (1985) ..........0.....4.. 3

Howlett v. Rose, 496 U.S. 356 (1990)......0.....0. ee 3

Illinois v. Gates, 462 U.S. 213 (1983)......cccccccceseee. 3

Jones v. Searles Labs., 444 N.E.2d 157 (Il.

PUP cciiisianiancisnsidacsbocusdiathmmdaiacadabenaiaioneetannnneiie 8

Nike v. Kasky, 539 U.S. 654 (2003) ...........ccceeeeeeees 5

Cre 0. Grr, BAGS. BOB CYST SOD ccceccossctesssctessessiocsss 4

Pacheco de Perez v. AT&T Co., 139 F.3d 1368

ye, Ocul cchicsicpncasdenicasadandioadctoandsiaunbcieds 8

Patrickson v. Dole Food Co., 251 F.3d 795 (9th

tart aT 1c, 1s ctl cules aicacudnniaaubivbcbesesaudedaacsiicneasauias &

Propper v. Clark, 337 U.S. 472 (1949)... eee 7

Raley v. Ohio, 360 U.S. 423 (1959) ooo. 4

Torres v. S. Peru Copper Corp., 113 F.3d 540

ID I I scien casas sh ecasecdbhgdaceoastnddaias 8

Van Cauwenberghe vy. Biard, 486 U.S. 517

aU 151 91<i8. thc saccadic antubcepsbsaonoabedasecoeatubdaumiansbens 6, 7

STATUTES

II TIED 5-15 on 5s cisacanscasnedorasrsebatntboannasensss 4

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OTHER AUTHORITY

Robert L. Stern et al., Supreme Court Practice

SU IN ss dacsccistokusiecoahiahocenbbanadéaxbapccsasndesvens 4

REPLY BRIEF OF PETITIONER

Stripped of its sarcasm, respondents’ brief in opposition is

nothing more than an evasion of the important federal

questions raised in the petition for certiorari. Respondents’

jurisdictional objections are unsound. The Delaware Supreme

Court’s decision by its terms wholly excludes any

consideration of foreign sovereign interests in determining

whether an American state court May exercise jurisdiction

over a foreign dispute. Pet. App. 15a-16a, 18a: Pet. 10. The

federal law of foreign relations necessarily governs that

question, and that question was passed on below. That is all

that is required for this Court’s jurisdiction; it matters not

whether the court below expressly framed the issue as one of

federal law. Nor is there a lack of finality. If the state court’s

ruling is reversed, respondents’ complaint must be dismissed

(as the Delaware Court of Chancery had ruled). Accordingly,

this case falls well within the fourth rule of pragmatic finality

under Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 (1975).

Respondents’ position, that any ruling embedded within a

State court’s denial of a forum non conveniens motion is ipso

facto insulated from this Court’s review, is unsupported by

this Court’s precedents and would result in the wholesale

abdication of the Court’s critical role of ensuring that the

exercise of state court jurisdiction does not trench upon the

foreign relations of the United States.

Their flawed jurisdictional objections aside, respondents

can muster little argument against review. Other than

(erroneously) to deny that the court below decided a federal

question, respondents have no answer to Pan American’s

showing of a conflict in the circuits about whether American

courts must weigh foreign sovereign interests in declining

jurisdiction. Pet. 15-19; infra at 7-8. There can be little

doubt of the importance of this issue in a global economy

where plaintiffs increasingly resort to American courts for

resolution of foreign disputes. The paramount importance of

2

this issue to foreign governments is underscored by the

participation of the Republic of Argentina as amicus curiae

, , | — —

urging review. This Court should grant the petition.

I. THIS COURT HAS JURISDICTION TO HEAR

THIS APPEAL.

1. Respondents do not seriously contest the merits of Pan

American’s petition. See Opp. 12 (declining to “explore here

the allegedly ‘mature’ conflict now pending in the lower

courts”). Rather, they assert that this Court jacks jurisdiction

because the questions decided below “were all framed solely

in terms of Delaware law.” /d. at 7. But these jurisdictional

concerns are baseless because the Delaware Supreme Court

did, in fact, pass upon an important federal question.

The Delaware Supreme Court held that foreign sovereign

interests “have no logical relevance” to whether a state court

would exercise jurisdiction over the Argentine dispute, which

depends only upon the convenience to the private parties of

litigating in Delaware. Pet. App. |6a; Pet. i4. The propriety

of state court jurisdiction that trenches on foreign sovereign

interests, however, is unquestionably governed by federal

law. “The basic choice regarding the competence and

function of the Judiciary and National Executive in ordering

our relationships with other members of the international

community must be treated exclusively as an aspect of federal

law.” Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398,

425 (1964). Accordingly, “matters bearing on the Nation’s

foreign relations ‘should not be left to divergent and perhaps

parochial state interpretations.” First Nat'l City Bank v.

Banco Para El Comercio Exterior de Cuba, 462 U.S. 611,

622 n.11 (1983) (quoting Sabbatino, 376 U.S. at 425).

‘The Repuolic of Argentina’s amicus brief also dispels respondents’

claim that the Argentine government was unaware that respondents had

dropped some of their most intrusive claims for injunctive relief, or that

doing so in any way mitigated the threat to Argentina’s sovereign

interests. See Opp. 2, 12-13: cf. Amicus Br. 6 n.2; see generally Pet. 8.

3

Indeed, respondents do not contest that federal law must

govern this question. They raise concerns (answered below)

regarding the content of a federal law rule, Opp. 10-11, and

argue that federal common iaw rarely should be invoked, id.

at 12 n.6, but they do not, and cannot, argue that federal law

does not govern questions of state court impairment of

foreign sovereign interests. It is unthinkable that this Court

has no power to curtail the exercise of state court jurisdiction

that jeopardizes the Nation’s foreign relations.

Respondents’ jurisdictional arguments rest solely on the

Delaware court’s framing of the issue in state law terms. But

it is within this Court’s “province to inquire not only whether

[a federal] right was denied in express terms, but also whether

it was denied in substance and effect, as by putting forward

nonfederal grounds of decision that were without any fair or

substantial support.” Howlett v. Rose, 496 U.S. 356, 366

(1990) (quotation marks omitted). Indeed, this Court must

frequently look behind the asserted state law grounds for a

decision whenever “it is urged that the decision of the state

court rests upon a nonfederal ground.” Abie State Bank v.

Weaver, 282 U.S. 765, 773 (1931). This is because it remains

necessary for this Court “to ascertain for itself... whether the

asserted nonfederal ground independently and adequately

supports the judgment.” /d. Because the Delaware Supreme

Court's jurisdictional ruling is a question of federal law, this

Court has jurisdiction here.

Respondents’ further argument that petitioner did not

present this federal question to the Delaware Supreme Court

is both irrelevant and disingenuous. This Court will exercise

jurisdiction if the federal question was either “pressed or

passed upon in the state court.” Heath v. Alabama, 474 US.

82, 87 (1985); cf. Illinois v. Gates, 462 U.S. 213, 218-19

(1983) (leaving open the question whether this rule is

jurisdictional or prudential). As noted above, the Delaware

Supreme Court below did pass upon a federal question.

Respondents fail to heed the disjunctive nature of the

4

“pressed or passed upon” test, and the “*elementary rule that

it is irrelevant to inquire . . . when a Federal question was

raised in a court below when it appears that such question was

actually considered and decided.“ Orr v. Orr, 440 U.S. 268,

274-75 (1979) (omission in original); Raley v. Ohio, 360 U.S.

423. 436 (1959) (“There can be no question as to the proper

presentation of a federal claim when the highest state court

passes on it.”); Robert L. Stern et al., Supreme Court Practice

§ 3.19, at 185 (8th ed. 2002) (“Once it is clear that the highest

state court has actually passed on the federal question, . . .

{ajln irrebuttable presumption is created that the federal

question was timely and properly raised.”). Moreover, the

argument is disingenuous because the Court of Chancery had

dismissed the complaint on state law grounds, and the federal

question did not arise until the Delaware Supreme Court

announced the novel rule that foreign sovereign interests are

“legally irrelevant” to a determination of whether a state court

will exercise jurisdiction. Pet. App. 15a. That holding

embodies a clear rule of decision that arises under federal law

and warrants this Court’s review.

2. Respondents’ finality argument is similarly unavailing.

The petition fully described how the judgment below satisfies

the jurisdictional finality requirement of 28 U.S.C. § 1257, for

here “reversal of the state court on the federal issue would be

preclusive of any further litigation on the relevant cause of

action rather than merely controlling the nature and character

of, or determining the admissibility of evidence in, the state

proceedings still to come,” Cox Broadcasting, 420 U.S. at

482-83. See Pet. 11-12 & n. 1. Respondents’ primary

objection to finality — that there was no federal issue finally

decided in the case, Opp. 9 — is wrong for the reasons given

above. Their secondary objection — that a ruling on the

federal question would not preclude “*further litigation on the

relevant cause of action,” id. (emphasis added) — is likewise

untenable. A decision on the federal question in favor of

5

—

petitioner will end the case without any litigation on the

merits of respondents’ tort and contract claims.

Respondents nonetheless suggest that a decision on the

federal question would not be preclusive because this Court’s

disposition of the case “could ‘take a number of [other]

paths," Opp. 9 (alteration in original) (quoting Nike v. Kasky,

539 U.S. 654, 660 (2003) (Stevens, J.. concurring)). Justice

Stevens's concurrence is inapposite; the federal question at

issue in Nike was a merits question concerning the test for

infringement of commercial speech under the First

Amendment. Justice Stevens noted that certain claims might

have to be litigated regardless because they did not involve

commercial speech, and that some First Amendment

standards that the Court could adopt (such as actual malice)

would entail factfinding in the litigation of a First

Amendment affirmative defense to a state law unfair

competition claim. Nike v. Kasky, 539 U.S. 654, 660 (2003)

(Stevens, J., concurring). Here, by contrast, there is no

possibility of litigation on the merits of respondents’ state tort

law and contract claims if the federal question of abstention to

avoid impairment of federal sovereign interests is resolved in

favor of petitioner. Thus, respondents’ attempt to distinguish

Cox is unavailing.

It is clear that the rule announced below — that foreign

sovereign interests are irrelevant to a state court’s decision to

assume jurisdiction, and the plaintiff's choice of forum will

be honored unless the defendant can make the “rare” showing

that he “will be subjected to overwhelming hardship and

inconvenience if required to litigate in [state court],” Pet.

App. 15a (internal quotation marks omitted) — cannot be

maintained as a\rule of federal law, and must be rejected by

this Court. The proper federal abstention rule will be decided

by this Court on the merits. Respondents fault petitioner for

not declaring the metes and bounds of a “one-size-fits-all”

federal rule of abstention. Opp. 9-10. There is no need.

Under the federal common /aw of foreign relations, this Court

6

may decide this case on the record before it. What is clear is

that federal law requires an American court to dismiss a

foreign commercial dispute that: 1) arises on foreign soil; 2)

is governed by foreign law; 3) will determine the duties,

liabilities, and extraction practices of foreign petroleum

producers and foreign surface land owners; and 4) will affect

both the foreign nation’s production of national energy

resources and that nation’s revenues. What makes the

argument in favor of dismissal overwhelming is_ the

incontrovertible existence of an adequate forum to resolve

this dispute. An academic may feel the urge to speculate

about broad principles that will apply to every case that may

arise in the future, see id. at 10, but it is this Court’s duty to

decide the case before it, and establish the basic principle of

foreign relations law that a state court cannot exercise

jurisdiction in the circumstances presented in this case. A

federal ruling of abstention would unquestionably end the

case without further litigation on the merits, and thus this case

is squarely within Cox.

Respondents also try to shoehorn this case under the

doctrine of Van Cauwenberghe v. Biard, 486 U.S. 517

(1988), a case involving 28 U.S.C. § 1291, whose finality

requirements are distinct from those in § 1257. See Flanagan

v . United States, 465 U.S. 259, 265 n.3 (1984). Even putting

aside the differences between § 1291 and §_ 1257,

respondents’ claim that Biard is “quite dispositive” is

misplaced. Respondents fail to engage the central point of

Pan American’s argument: that Biard is not controlling

because there is no risk that review would enmesh this Court

in the merits of the case. As stated in the petition, the Court

in Biard held that the balancing of the relevant public and

private factors in application of ordinary forum non

conveniens doctrine (such as the location of witnesses and

evidence necessary to prove claims and defenses) bore too

close a relationship to litigation of the merits to be final under

the collateral order doctrine (which is but one grounds for

7

finality under Cox). Pet. 12 n.1; Biard, 486 U.S. at 527-29.

Petitioner does not ask this Court to conduct the forum non

conveniens balancing test, which here is a matter of state law,

but simply to resolve the federal issue of a state court’s duty

to abstain from jurisdiction to avoid impairment of foreign

sovereign interests. This Court plainly has jurisdiction.

Il. REVIEW IS NECESSARY TO RESOLVE A

CONFLICT ON THE IMPORTANT FEDERAL

ISSUE OF WHETHER STATE COURTS MAY

EXERCISE JURISDICTION THAT IMPAIRS

FOREIGN SOVEREIGN INTERESTS.

1. Its jurisdictional objections overcome, respondents have

no basis to oppose certiorari. As noted above, they have no

answer to the petition’s showing of a significant circuit split

on the federal issue decided below. The petition explained

how the Delaware Supreme Court rejected the reasoning of

the Fifth and Eleventh Circuits, and the Illinois Supreme

Court, by concluding that foreign sovereign interests were

“legally irrelevant” to the decision of whether to retain

jurisdiction. Pet. App. 15a.2_ In doing so, the Delaware

* Respondents remarkably ignore this holding of the Delaware Supreme

Court to claim that the state court “gave elaborate consideration to

[foreign sovereign] interests,’ Opp. 12, expressing disbelief that another

“approach could be more sensitive to foreign sovereign interests.” /d. at

13. The passages they cite only deal with the Delaware Supreme Court’s

erroneous ruling on whether the Argentine courts have exclusive

jurisdiction of these claims. See Pet. App. 26a-32a. Other courts do not

limit the consideration of foreijn sovereign interests to whether that

nation’s courts have formally established exclusive jurisdiction over the

dispute in its courts. Moreover, contrary to respondents’ claim, petitioner

does challenge the exclusive jurisdiction ruling as one of the predicates to

a ruling on the federal abstention question. /d. at 23a-24a. The nature of

foreign jurisdiction is a question of foreign law, but this Court may

resolve any issue of foreign or state law that is a predicate to an intelligent

resolution of the federal question. See, e.g., Propper v. Clark, 337 U.S.

472, 490 (1949) (noting that “[w]here a case involves a nonconstitutional

federal issue, . . . the necessity for deciding which depends upon the

8

Supreme Court aligned itself with the Ninth Circuit, which

also refuses “to take the interests of [a] foreign government

into account” in deciding whether to retain jurisdiction.

Patrickson v. Dole Food Co., 251 F.3d 795, 804 (9th Cir.

2001). The Delaware Supreme Court and the Ninth Circuit

are in direct conflict with other jurisdictions, including the

Fifth and Eleventh Circuits, and the Illinois Supreme Court._

In Torres v. S. Peru Copper Corp., 113 F.3d 540, 542-43 (Sth

Cir. 1997), the Fifth Circuit declined to exercise jurisdiction

over a dispute that implicated “Peru’s sovereign interests by

seeking damages for activities in which the government

actively has been engaged.” /d. at 543. The Eleventh Circuit

likewise acknowledged that foreign sovereign interests are

“significant” in determining whether to retain jurisdiction

over a dispute implicating those interests. Pacheco de Perez

v. AT&T Co., 139 F.3d 1368, 1378 (11th Cir. 1998); cf. Pet.

App. at 1 15a (describing the Republic of Argentina’s “utmost

interest that legal questions arising within the framework of

the [Hydrocarbon Law] . . ., between the licensees of hydro-

carbon and the owners of the surface realty be dealt with in

conformity with Argentine law and before the Courts of the

Argentine Republic’). Consistent with these approaches, the

Illinois Supreme Court takes into acccunt foreign sovereign

interests to avoid “‘an inappropriate usurpation of a foreign

court’s proper authority to decide a matter of local interest.’”

Jones v. Searles Labs., 444 N.E.2d 157, 161 (Ill. 1982). This

Court’s intervention to provide clarity on this important

question of federal law is imperative.

2. The petition also described the Republic of Argentina’s

crucial sovereign interests in this case, which were expressed

by notifying the United States State Department and the

Argentine Supreme Court of Argentina’s paramount role as

owner and manager of the country’s oil and gas reserves. See

Pet. App. 48a-72a, 115a-116a. The petition further

decision on an underlying issue of state law, the practice in federal courts

has been, when necessary, to decide both issues”’).

9

demonstrated how the infringement on Argentine sovereignty

is especially severe in this case, where respondents’ lawsuit

seeks to displace Argentina’s carefully prescribed regulatory

scheme with “international standards for forest engineering”

to govern the legal relationship between hydrocarbon

concessionaires and surface owners. /d. at 153a.

Respondents try to discredit this analysis by claiming that

the Republic of Argentina was unaware that they had

withdrawn most of their claims for equitable relief, and its

concerns were limited to the effect of injunctions. Opp. 2.

Respondents do not even answer the showing in the petition

that one of the principal considerations of the Republic of

Argentina was the need to maintain the exclusive jurisdiction

of the Argentine courts over damages remedies. Pet. 23a. In

any event, respondents’ argument is laid to rest by the

Republic’s amicus brief in support of the petition. The

Republic of Argentina has informed this Court, in unequivo-

cal terms, that in its current posture “this case . . . threatens

[its] sovereign interest in developing and regulating its natural

resources,” and in implementing “a comprehensive regime

regulating and harmonizing the competing interests of surface

property owners (such as Respondents) and holders of rights

to extract subsurface hydrocarbons (such as Petitioner),”

Amicus Br. |, as well as its revenues from federally owned

petroleum resources, id. at 5. The Republic notes that the

foreign relations of the United States are implicated when

state power threatens “a coordinate sovereign’s control over a

matter crucial to its sovereignty,” such as natural resource

development, and “[floreign nations cannot easily tolerate a

regime in which their critical interests are subjected to the

regulation of fifty different states.” /d. at 4. Argentina looks

to this Court as “the only American tribunal capable of

remedying such divergences” among the states. /d. And

none of Argentina’s concerns is obviated by respondents’

withdrawal of certain (but not all) of its claims for equitable

10

relief, since “[c]ourts shape conduct through damages awards

just as surely as they do through injunctions.” /d. at 6 n.2.

The rule endorsed by the court below, if permitted to stand,

sets a dangerous precedent. As respondents note, “Delaware

is the state of incorporation for many major United States

corporations, and also for many companies operating

principally abroad.” Opp. 11. That is precisely the problem.

Given the vast number of corporations that are incorporated

in Delaware, and more stil! that are subject to personal

jurisdiction in Delaware, a foreign plaintiff will have

essentially carte blanche to bring any foreign dispute into the

Delaware courts. Under the ruling below, no matter the

significance of the foreign interests to be litigated, the state

court necessarily must exercise jurisdiction unless the

defendant can prove overwhelming hardship from litigating in

Delaware. Pet. App. 15a. Indeed, far from downplaying this

risk, respondents advertise it. See Opp. 12 (citing the

Delaware courts’ “readiness to hear disputes”’).

From the perspective of this Nation, needful of maintaining

harmony with its fellow nations, this expansive state

jurisdictional rule is intolerable. It is not a question solely of

whether a state court can properly apply Argentine law,

understand translations of foreign witnesses, and accurately

resolve disputes (although there are intrinsic difficulties with

state court jurisdiction in each of those respects). It is also a

question of whether foreign nations will take offense at

American state governments assuming the power to decide

foreign disputes that are fundamental to their sovereign

interests. This Court must be vigilant to ensure that state

courts do not exercise jurisdiction in a manner. that

jeopardizes national foreign relations.

CONCLUSION

For these reasons, and those set forth in the petition, a writ

of certiorari should be granted.

Respectfully submitted,

CARTER G. PHILLIPS*

STEPHEN B. KINNAIRD

MICHAEL C. SOULES

SIDLEY AUSTIN BROWN &

WOobD LLP

1501 K Street, N.W.

Washington, D.C. 20005

(202) 736-8000

Counsel for Petitioners

January 25, 2005 * Counsel of Record