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

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_1173%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Reply Brief
- **Published:** January 1, 2005
- **Citation:** 543 U.S. 1177

## Text

/. \
ra ; 19 5 M rye,
( 4) IBN | 2U03

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

(1)

il
~ 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
IT IIE ns cts caphadiginacspnavnmmovenianiabatamone 6
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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386007_1173%3A3. Public record. Not legal advice.