Amicus Curiae Brief — Union Mortgage Co. v. Barlow

No. 91-1962

en _

IN THE

Suprene Court of the United States

OCTOBER TERM, 1992

UNION MORTGAGE COMPANY, IN(¢

Petitioner,

Re spond nts.

WILLIE MAE BARLOW and WILLIE J. GALY,

On Petition for a Writ of Certiorari to the

Supreme Court of Alabama

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF FOR THE REPUBLIC OF FINLAND

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

GEORGE A. BERMANN

Counsel of Record

COLUMBIA UNIVERSITY

SCHOOL OF LAW

435 West 116th Street

New York, N.Y. 10027

(212) 854-4258

Attorney for Amicus Curiae

Republic of Finland

WASHINGTON, D.C. 20001

Inc. - 789-0096 -

WILSON -

EPES PRINTING CO

IN THE

Supreme Court of the Wuited States

OCTOBER TERM, 1992

[INION MORTGAGE COMPANY, INC.,

Petitioner,

WILLIE MAE BARLOW and WILLIE J. GALY,

Re spond nts.

On Petition for a Writ of Certiorari to the

Supreme Court of Alabama

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

he Renublic of Finland (“Finland”) hereby respect-

fully moves for leave to file the attached brief amicus

curiae in this ease on behalf of Petitioner.*

1. Parties Consenting and Refusing Consent

The consent of the Petitioner has been obtained and

has been lodged with the clerk of this Court. The consent

of the Respondent was requested but refused.

As Respondents received the Petition for Certiorari on June 10,

1992 (Brief of Respondents in Opposition to Petition for a Writ

of Certiorari at 10). this motion is timely. Sup. Ct. R. 37.2.

2. Nature of Interest of the Republic of Finland

Finland submits this brief in order to protect its interest

in the treatment of its nationals under the Treaty and

Protocol of Friendship, Commerce and Consular Rights

between the United States of America and Finland of

February 13, 1934, 49 Stat. 2659, as modified by the

Protocal of Regents of December 4, 1952, 4 U.S.T. 2047

(the “Friendship Treaty”). Finland also submits this

brief in support of its interest in having due respect

accorded by the United States to public acts of Finland

within its territory, in keenpins

_

with principles of inter-

national comity.

In particular, Finland wishes to express its view that,

by failing to accord a Finnish banking institution that

has been taken over by the Bank of Finland the same

protection from liability for punitive damages that would

be accorded to American banking institutions taken over

by governmental regulators, the decision below is incon-

sistent with the United States’ obligations under the

Friendship Treaty and with basic principles of interna-

tional comity.

3. Issues Uniquely Addressed by Amicus Finland

Finland is ina superior position, relative to the parties,

to inform the Court of the potential for the instant case

to affect the rights of Finland and of its nationals under

the Friendship Treaty. Finland is also in a superior posi-

tion to argue the appropriate application of principles of

comity.

Finland believes that the brief which it is requesting

permission to file will contain a more complete argument

on the international legal issues than the briefs filed by

the parties to the case. These arguments, if accepted,

would assist the Court in disposing of the case. Accord-

ingly, Finland’s motion should be granted and the at-

tached brief should be considered by the Court in its

deliberation on the Petition for Certiorari.

* subn ec]

GEORGE A. BERMANN

Counsel of Record

COLUMBIA UNIVERSITY

SCHOOL OF LAW

: 35 West 116th Street

New York, N.Y. 10027

(212) 854-4258

Att jfor Am Cur

July 9, 1992 Republic of Finland

TABLE OF CONTENTS

TABLE OF AUTHORITIES

INTEREST OF THE REPUBLIC OF FINLAND

REASONS FOR GRANTING THE WRIT

£

Il.

THE DECISION BELOW IS INCONSISTENT

WITH THE PRINCIPLE OF NATIONAL

TREATMENT UNDER THE FRIENDSHIP

TREATY .

A.

D.

The Friendship Treaty Has The Authority

Of Federal Law In The Courts Of The United

States

. The Friendship Treaty Guarantees Finnish

Nationals The Same Treatment In The Con-

duct Of Their Commercial Activities As

Analogous United States Nationals Enjoy.

. The Alabama Courts Failed To Accord Fin-

nish Nationals The Equal Treatment To

Which They Are Entitled Under The Friend-

BEE NN icccticcacsiaecvisicanaiece etka

1. The Alabama Courts Failed To Respect

The Separate Corporate Identities Of A

Finnish Corporation And Its U.S. Incor-

porated Subsidiary Where It Would Have

Respected The Separate Existence Of A

U.S. Corporation And Its Subsidiary ......

The Alabama Courts Failed To Accord

A Finnish Entity The Same Protection

From Punitive Damages To Which A U.S.

Entity Would Be Entitled Under Like

Circumstances

ho

Union May Raise The Issue Of Unequal

Treatment Under The Friendship Treaty...

THE DECISION BELOW IS INCONSISTENT

WITH PRINCIPLES OF INTERNATIONAL

SR RIIIINETE TE. ss ssassanccelicodataingtuanial aa anigladims ane tacadieis

6

10

11

il

TABLE OF CONTENTS—Continued

Principles Of International Comity Require

United States Courts To Show Proper Con

sideration For The Legitimate interests Of

Foreign Governments 14

International Comity Counsels That U.S.

Courts Not Impose Punitive Damages Un-

der Circumstances In Which A Foreign

State And Its Citizens Will Bear The Burden

And In Which No Compelling Interest Of

The United States Or Its Citizens Will Be

Served 16

CONCLUSION 2()

ili

TABLE OF AUTHORITIES

CASES Page

In re Air Disaster at Lockerbie Scotland on Dee.

21, 1988, 928 F.2d 1267 (2d Cir.), cert. denied,

112 S. Ct. 331 (1991) 19

Asahi Metal Industry a. Supe rior Court, 480 U.S.

102 (1987) 14

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

398 (1964) 14

Bangor Punta Operations, Inc. v. Ba ngor & Aroos-

took R. Co., 417 U.S. 703 (1974) 8

Canada Southern Railway v. Gebhard, 109 U.S.

527 (1883) 17

City of Newport v. Fact Concerts, Inc., 453 U.S.

247 (1981) 10, 11,17

Colonial Bank v. Compagnie Generale Maritime et

Financiere, 645 F. Supp. 1457 (S.D.N.Y. 1986) 6

Cornfeld v. Investors Overseas Services, Ltd., 471

F. Supp. 1255 (S.D.N.Y.), aff’d without opinion,

614 F.2d 1286 (2d Cir. 1979) 17

Craig v. Boren, 429 U.S. 190 (1976) ' 13

Cunard Steamship Co. v. Salem Reefer Services

AB, 773 F.2d 452 (2d Cir. 1985) 17

First National City Bank v. Banco Para el Com-

ercio Exterior de Cuba, 462 U.S. 611 (1983) 8,9

Floyd v. Eastern Airlines, 872 F.2d 1462 (11th

Cir. 1989), rev'd, 111 S. Ct. 1489 (1991) 19

Fortino v. Quasar Co., 950 F.2d 389 (7th Cir.

1991) 3, 13

Matter of GAC Corp., 681 F.2d 1295 (11th Cir.

1982) tes 10

Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349

(6th Cir. 1992) 15

Gearhart v. Uniden Corp. of America, 781 F.2d

147 (8th Cir. 1986) vane 9

In re Goerg, 844 F.2d 1562 (11th Cir. 1988), cert.

denied, 488 U.S. 1034 (1989) 17

Hammond v. City of Gadsden, 493 So. 2d 1374

(1986) 11

HCA Health Services v. National Bank of Com-

merce, 745 S.W.2d 120 (Ark. 1988) 9

iv

TABLE OF AUTHORITIES—Continued

Herman v. Hess Oil Virgin Islands Corp., 379 F.

Supp. 1268 (D. St. Croix, 1974)

Hilton v. Guyot, 159 U.S. 113 (1895)

Ingersoll Milling Machine Co. v. Granger, 833 F.2d

680 (7th Cir. 1987)

Kolovrat v. Oregon, 366 U.S. 187 (1961)

In re Korean Air Lines Disaster of Sept. 1, 1983,

932 F.2d 1475 (D.C. Cir.), cert. denied, 112

S. Ct. 616 (1991)

Kwick Set Components, lnc. v. Davidson Industries,

Ine., 411 So. 2d 134 (Ala. 1982) Saas!

Laker Airways Ltd. v. Sabena, Belgian World Air-

lines, 731 F.2d 909 (D.C. Cir. 1984) ae

Lanz v. Resolution Trust Corp., 764 F. Supp. 176

(S.D. Fla. 1991)

MacNamara v. Korean Air Lines, 1987 U.S. Dist.

LEXIS 10218 (E.D. Pa. 1988), rev’d, 863 F.2d

1135 (3d Cir. 1988), cert. denied, 493 U.S. 944

(1989)

Matrix-Churchill v. Springsteen, 461 So. 2d 782

(Ala. 1984) er

Messick v. Moring, 514 So. 2d 892 (Ala. 1987)

Miller Brewing Co. v. Best Beers of Bloomington,

579 N.E.2d 626 (Ind. App. 1991)

M S Bremen v. Zapata Offshore Co., 407 U.S. 1

(1972)

Pacific Muiual Life Insurance Co. v. Haslip, 111

S. Ct. 10382 (1991)

Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981)

Resolution Trust Corp. v. Mooney, 592 So. 2d 186

(1991) : rir

Romero v. International Terminal Operating Co.,

358 U.S. 354 (1958)

Schlesinger v. Councilman, 420 U.S. 738 (1975)

Secretary of State of Maryland v. Joseph H. Mun-

son Co., 467 U.S. 947 (1984)

Singleton v. Wulff, 428 U.S. 106 (1976)

Société Nationale Industrielle Aérospatiale v. U.S.

District Court, 482 U.S. 522 (1987) ..................

6,

v

TABLE OF AUTHORITIES—Continued

Page

Somporter Ltd. v. Philadelphia Chewing Gum

Corp., 453 F.2d 435 (3d Cir. 1971), cert. denied,

Te BE I onto tesicresoeceoss 14

Spiess v. C. Itoh & Co. (America), 643 F.2d 353

(5th Cir. 1981) : ; 6

Sumitomo Shoji America, Inc. v. . Avagliano, 457

U.S. 176 (1982) 6, 12

Taylor v. Standard Gas Co., 306 U.S. 307 (1939) . 9

United States v. Pink, 315 U.S. 203 (1942) 5

Velasquez-Rodriquez Case, Inter-American Court

of Human Rights, Decision on Compensation

(Ser. C.) gee 21, 1989) .. fakes Seneca oe 19

Verlinden B.V. v. Central Bonk of Nigeria, 461

U.S. 480 (1988) . raat 14

Yamaha Corp. of America v. United States, 961

F.2d 245 (D.C. Cir. 1992) Re LG ite (Es

Younger v. Harris, 401 U.S. 37 (1971) ets 4

Zschernig v. Miller, 389 U.S. 429 (1968) 6, 14

STATUTES

Ala. Code § 6-11-26 (Supp. 1991) 18

11 U.S.C. § 304(c) (1988) : 17

28 U.S.C. § 1606 (1988) ... 19

28 U.S.C. § 2674 (1988) ...... . . 18

42 U.B. § 1968 (1968) .....::..:............ 58 ile . 10

TREATIES

Treaty and Protocol of Friendship, Commerce and

Consular Rights between the United Scates of

America and Finland, Feb. 13, 1934, 49 Stat.

2659, arts. I, XVI, XVII, as modified by the Pro-

tocol of Regents of Dec. 4, 1952, 4 U.S.T. 2047..passim

CONSTITUTIONAL PROVISIONS

if. Bp a a § ee

Or

vi

TABLE OF AUTHORITIES—Continued

MISCELLANEOUS Page

E. Aurejarvi, General Principles of The Law of

Obligation, in THE FINNISH LEGAL SYSTEM (J.

Uotila, ed., 2d ed., 1985) 20

XI INTERNATIONAL ENCYCLOPEDIA OF COMPARA-

TIVE LAW (A. Tunc, ed., 1986) 19

RESTATEMENT (THIRD) OF FOREIGN RELATIONS

LAW (1987) ee eR S es 15, 19

RESTATEMENT (SECOND) OF CONFLICT OF LAWS

(1971) 16

E. Riedel, Damages, in 10 ENCYCLOPEDIA OF PUB-

LIC INTERNATIONAL LAW (1987) 19

8 M. WHITEMAN, DIGEST OF INTERNATIONAL LAW

(1967) Brahe 19

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

No. 91-1962

UNION MORTGAGE COMPANY, INC..

Petitioner,

V.

WILLIE MAE BARLOW and WILLIE J. GALY.

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of Alabama

BRIEF FOR THE REPUBLIC OF FINLAND

AS AMICUS CURIAE IN SUPPORT OF PETITIONER

The Republic of Finland (“Finland”) submits this brief

in support of the petition of Union Mortgage Company,

Ine. (“Union”) for a writ of certiorari in this case.

INTEREST OF THE REPUBLIC OF FINLAND

Finland submits this brief in order to protect its in-

terest in the treatment of its nationals under the Treaty

and Protocol of Friendship, Commerce and Consular

Rights between the United States of America and Finland

of February 13, 1934, 49 Stat. 2659, as modified by the

Protocol of Regents of December 4, 1952, 4 U.S.T. 2047

(the “Friendship Treaty”). (Pet. App. 41a.) Finland

also submits this brief in support of its interest in having

2

due respect accorded by the United States to public acts of

Finland within its territory, in keeping with principles

of international comity.

Finland believes that, by failing to accord a Finnish

banking institution that has been taken over by the Bank

of Finland the same protection from liability for punitive

damages that would be accorded to an American banking

‘nstitution taken over by the Federal Deposit Insurance

Corporation «“FDIC”) or the Resolution Trust Corpo-

ration (“RTC”), the decision below is inconsistent with

the obligations of the United States under the Friend-

ship Treaty and with basic principles of international

comity. The impact of the failure to accord protection

here is that the burden of the punitive damages awarded

by the Alabama courts will be borne by Finnish taxpayers.

In affirming the $6 million punitive damage jury verdict

against Union, both the Alabama trial court and the Ala-

bama Supreme Court looked directly past Union to the

resources of its parent, Skopbank. (Pet. App. 22a-23a,

38a-39a.!' Skopbank is a Finnish banking corporation

which serves as the central bank for all of the savings

banks of Finland and which has its principal place of

business in Helsinki, Finland. Skopbank was taken over

1In considering the economic impact of the punitive award on

the defendant, the Alabama Supreme Court quoted with approval

the trial court’s statement that it

has considered the economic relationship between Skopbank

and its wholly-owned subsidiary Union Mortgage. Skopbank

has extended to Union Mortgage an unsecured line of credit

totaling $550,000,000.00 dollars through a w holly-owned United

States holding company. ” Based upon the evidence pre-

sented at that [Hammond] hearing of April 9, 1991, this Court

finds that a substantial portion of the $550,000,000 represents

a contribution of capital by Skopbank of Helsinki, Finland, to

its wholly-owned subsidiary Union Mortgage.

Pet. App. 39a; see also Pet. App. 22a-28a. ) In fact, the amount of

the credit line and its characterization as a “contribution of cap-

ital” were unsupported by the evidence and are inaccurate. (Pet.

App. 76a.)

by the Bank of Finland afier the award was affirmed by

the trial court, but before it was affirmed by the Alabama

Supreme Court.

The seizure of Skopbank resulted from a drastic de-

terioration in its financial condition in 1991. (Pet. App.

46a. 72a-75a.) In order to restore confidence in Skop-

hank’s activities and the Finnish interbank money market,

the Bank of Finland, in cooperation with the Finnish

Banking Supervision Office, took over majority beneficial

ownership and voting control of Skopt yank. (Pet. App.

46a. 72a-73a, 91a.) The effect was to place Skopbank in

the equivalent of FDIC or RTC conservatorship.”

Although Alabama punitive damage review procedures

give parties the right to bring new facts bearing on fi-

nancial hardship to the attention of the appellate court,

and Union did so, the Alabama Supreme Court ignored

the Bank of Finland’s takeover of Skopbank and Union's

demonstration that the impact of the award would con-

sequently fall on the Finnish taxpayer."

2On June 15, 1992. the Bank of Finland transferred its owne

ship interest in Skopbank to the Government Guarantee Fund

“GGF”). a governmental institution, which was create by the

Finnish Parliament in March 1992 and whose membership inciuces

representatives from the Parliamentary Supervisory Board, the

Ministry of Finance, the Bank of Fi nland,. and the Banking Supe!

vision Office. In general terms, the GGF is similar in nature

function to the FDIC and the RTC. The measures take!

Bank of Finland from September 1991 were of the same kind that

the GGF could have ahem had it existed at the time

+?

tespondents argue that these matters may not be consider

appeal. (Brief of Respondents in Opposition to Petition for a Wr

of Certiorari at 3.) This is mistaken, not only for the re

forth in the Petition for Certiorari, but also because where, as here

U.S. treaty obligations and princi les of comity are implicated

comity itself warrants consideration for the first time on appeal

issues that would otherwise be deemed not to have been rails di

timely fashion. Fortin Quasar Co., 950 F.2d 389, 391 (7th Cir

1991 permitting issues relating to U.S.-Japanese Friendst

4

At the time of the verdict in this case, Union’s net

worth was less than the amount of the punitive damage

award. (Pet. App. 58a-59a.) As a result of the punitive

damages exposure ignited by this verdict, Union effec-

tively ceased operating activities and had a negative net

worth as of September 1991. (Pet. App. 68a-69a, 76a,

78a, 90a.) Because Union’s exposure to punitive damages

far exceeds its net worth and the Finnish Government is

not able to identify anyone willing to purchase it, Union

is one of the risks which the Finnish Government is likely

to have to retain even if the Finnish Government is suc-

cessful in finding a buyer for a reorganized Skopbank.

Skopbank is by far Union's largest creditor, with a

credit line balance of approximately $126 million as of

February 1992. (Pet. App. 46a.) Accordingly, Skop-

bank’s resources will be further diminished as the puni-

tive award significantly impairs Union’s ability to satisfy

this debt. The financial impact will ultimately be felt

by the Finnish taxpayers, who already have contributed

to fund a massive governmental capital infusion in order

to save Skopbank from insolvency. (Pet. App. 46a-47a,

7T5a-7b6a.! This added burden on the Finnish taxpayer

would not have occurred if the Alabama courts had re-

spected the separate corporate identities of Union and

Skopbank or if they had accorded Skopbank the same

punitive damage immunity that they would have accorded

an American bank taken over by the FDIC or the RTC.

Treaty to be raised for first time on appeal); cf. Schlesinger v.

Councilman, 420 U.S. 738, 743 (1975) (raising sua sponte comity

issues between the state and federal governments); Younger v.

Harris, 401 U.S. 37, 40 (1971) (same).

REASONS FOR GRANTING THE WRIT

The Friendship Treaty between the United States and

Finland requires United States courts, state and federal,

to afford the same civil and commercial rights and pro-

tections to Finnish nationals (including Finnish corpo-

rate entities! doing business in the United States as they

afford to similarly situated U.S. nationals. By affirming

the punitive damages award, not on the basis of the

financial resources of Union, but on those of its Finnish

parent, Skopbank, the Alabama courts gave Union less

favorable treatment than they would have given a

domestically-owned company, and thus acted in a manner

inconsistent with the obligation of national treatment un-

der the Friendship Treaty.

International comity, recognized as part of American

law, was also disserved by the affirmance of a punitive

damages award that will effectively be borne by an arm

of the Finnish Government that has taken control of a

Finnish company—in effect, by the Finnish taxpayer.

Such punitive damages are unavailable against the United

States government or the State of Alabama or against

foreign governments sued directly in United States

courts. International comity looks unfavorably on such

a result.

I. THE DECISION BELOW IS INCONSISTENT WITH

THE PRINCIPLE OF NATIONAL TREATMENT

UNDER THE FRIENDSHIP TREATY.

A. The Friendship Treaty Has The Authority Of Fed-

eral Law In The Courts Of The United States.

International treaties to which the United States is.a

party enjoy supremacy under the United States Constitu- -

tion. U.S. Const. art. VI; United States v. Pink, 315

U.S. 203, 231 (1942). Bilateral treaties of friendship,

commerce and navigation, of which the Friendship Treaty

is an example, have been uniformly interpreted as giving

nationals of both parties legally enforceable rights which

6}

must be given effect in U.S. courts.*. As a class such

treaties bind each State party on its territory to accord

nationals of the other State party the same level of pro-

tection in broadly stated domains as it accords to its own

nationals.®

This Court has many times emphasized that state law,

whether legislative or judicial, should not be allowed to

impair the federal foreign relations power or otherwise

disturb U.S. relations with foreign states. F.g., Zschernig

vr. Miller, 389 U.S. 429, 440-41 (1968). This is particu-

larly important where a treaty of the United States gives

rise to legitimate expectations of protection on the part of

a foreign state. Kolovrat v. Oregon, 366 U.S. 187, 191-

96 (1961); Zschernig, 389 U.S. at 448, 451-57 (Harlan,

J., concurring).

B. The Friendship Treaty Guarantees Finnish Na-

tionals The Same Treatment In The Conduct Of

Their Commercial Activities As Analogous United

States Nationals Enjoy.

Article I of the Friendship Treaty provides that the

nationals of each party “within the territory of the other

shall be permitted * * * to carry on every form of

commercial activity upon the same terms as Nna-

tionals of the state of residence in so far as may be

permitted by local law.” Among the burdens that Article

I specifically guards against, under the principle of na-

* *

4+E.y., Kolovrat v. Oregon, 366 U.S. 187, 196 (1961); Spiess v.

C. [toh & Co. Am., 643 F.2d 353, 356 (5th Cir. 1981) (interpreting

Friendship, Commerce and Navigation Treaty as self-executing) ;

MacNamara v. Korean Air Lines, 1987 U.S. Dist. LEXIS 10218, at

*3-4, (E.D. Pa..1987), rev'd on other grounds, 863 F.2d 1135 (3d

Cir. 1988), cert. denied, 493 U.S. 944 (1989).

5 B.g., Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176, 186-

:

88 (1982): Yamaha Corp. of Am. v. United States, 961 F.2d 245,

258-59 (D.C. Cir. 1992): MacNamara, 1987 U.S. Dist. LEXIS

10218, at *6-7; Colonial Bank v. Compagnie Generale Maritime et

Financiere, 645 F. Supp. 1457, 1460 (S.D.N.Y. 1986).

~

tional treatment, is “the payment of any internal charges

* * * other or higher than those that are exacted of and

paid by its nationals,” and among the general guarantees

extended is “the most constant protection and security

for * * * property.” (Pet. App. 41a-42a.)

Article XVII of the Friendship Treaty underscores that

the Treaty’s protections extend not only to natural, but

also to juridical persons. Nationals of both States are

guaranteed rights and privileges ‘with respect to the

organization of and participation in limited liability and

other corporations and associations, for pecuniary profit

or otherwise.” (Pet. App. 43a.) Such entities, if “or-

ganized or controlled or participated in by the nationals

of either High Contracting Party within the territory of

the other,” are entitled to all the protections recognized in

the territory where they do business. (Jd.) This is con-

firmed by Article XVI, which gives “[l]imited liability

and other corporations and associations, whether or not

for pecuniary profit,” the same rights provided they are

“organized in accordance with and under the laws * * *

of either High Contracting Party and maintain a central

office within the territory thereof.” (Pet. App. 42a.)

Accordingly, under the Treaty, juridical persons, no less

than natural persons, are to be regarded as nationals of

the contracting parties and are entitled to equal treat-

ment to the extent provided for in Article I.°

® Even if Articles XVI and XVII were interpreted as according

corporations only most favored nation treatment, the fact that

other friendship treaties accord corporations national treatment

means that most favored nation treatment is national treatment.

8

C. The Alabama Courts Failed To Accord Finnish Na-

tionals The Equal Treatment To Which They Are

Entitled Under The Friendship Treaty.

1. The Alabama Courts Failed To Respect The

Separate Corporate Identities Of A Finnish

Corporation And Its U.S. Incorporated Subsidiary

Where It Would Have Respected The Separate

Existence Of A U.S. Corporation And Its Sub-

sidiary.

Article XVI of the Friendship Treaty provides that

“corporations * * * which have been or may hereafter be

organized in accordance with and under the laws * * *

of either High Contracting Party * * * shall have their

juridical status recognized by the other High Contracting

Party provided that they pursue no aims within its

territory contrary to its laws.” (Pet. App. 42a) (emphasis

added). Thus, the Treaty itself obligates the courts of

the United States to give the same respect to the separate

juridical status of Finnish corporations such as Skopbank

as to American corporations.’

It is well established under the law of Alabama that

the corporate form separating an American parent and

its subsidiary must be respected, absent a basis for pierc-

ing the corporate veil. E.g., Messick v. Moring, 514 So.

2d 892, 894-95 (Ala. 1987); Matrix-Churchill v. Spring-

steen, 461 So. 2d 782 (Ala. 1984) ; Kwick Set Components,

Inc. v. Davidson Tndus., Inc., 411 So. 2d 1384 (Ala.

1982). Similarly, this Court has long recognized the

principle that the doctrine of corporate identity must

generally be respected. E.g., Bangor Punta Operations,

7 Even apart from the Friendship Treaty, United States law re-

quires that respect for separate corporate identity be shown to

foreign state-owned corporations. First Nat’l City Bank v. Banco

Para el Comercio Exterior de Cuba, 462 U.S. 611, 626-27 (1983)

[hereinafter “Bancec’’|] (“government instrumentalities established

as juridicial entities distinct and independent from their sovereign

normally should be treated as such’).

Inc. v. Bangor & Aroostcok R. Co., 417 U.S. 703, 713

(1974); Taylor v. Standard Gas Co., 306 U.S. 307, 322

(1939). Had the punitive award been assessed against a

subsidiary of a U.S. corporation, the financial resources of

the parent could not have been considered without first

establishing a basis for doing so by traditional alter ego

analysis.*

The obligation to respect corporate identity was not

honored here. As shown above, the Alabama trial court

and the Alabama Supreme Court disregarded the separate

juridical status of Union and Skopbank when they affirmed

the $6 million punitive award based upon the financial

resources of Skopbank.* In so doing, the courts did not

even attempt to justify this unwarranted veil-piercing.

By failing to give a Finnish Corporation and its U.S.

subsidiary the benefit of this protection, the Alabama

courts acted in a manner inconsistent with both Article

XVI and the equal treatment obligation embodied in the

Friendship Treaty, as well as with “principles of comity

between nations” (further discussed below). Bancec, 462

U.S. at 626-27."

SE.g., Gearhart v. Uniden Corp. of Am., 781 F.2d 147, 153 (8th

Cir. 1986) ; Herman v. Hess Oil VI. Corp., 379 F. Supp. 1268, 1276-

77 (D. St. Croix, 1974); HCA Health Servs. v. National Bank of

Commerce, 745 S.W.2d 120, 123-24 (Ark. 1988); Miller Brewing

Co. v. Best Beers of Bloomington, 579 N.E.2d 626, 641-42 (Ind.

App. 1991).

® Indeed, Skopbank had not yet acquired Union at the time the

events underlying this cause of action took place. (Pet. App. 46a.)

10The Alabama courts compounded the error of looking past

Union to Skopbank by their failure, in so doing, to take account of

Skopbank’s actual financial distress. Such distress was manifest

both at the time of the trial court’s affirmance and even more so at

the time of the Alabama Supreme Court’s affirmance, at which point

Skopbank’s financial condition had deteriorated to such an extent

that it was in the Finnish equivalent of FDIC or RTC conservator-

ship.

10

2. The Alabama Courts Failed To Accord A Finnish

Entity The Same Protection From Punitive Dam-

ages To Which A U.S. Entity Would Be Entitled

Under Like Circumstances.

It is well established under United States law that the

assessment of punitive damages is improper when their

burden will effectively be borne by innocent third parties

whose “punishment” will serve neither the retributive nor

deterrent purposes that punitive damages are supposed to

serve. Thus, the Alabama Supreme Court held in Resolu-

tion Trust Corp. v. Mooney, 592 So. 2d 186 (1991), under

highly analogous circumstances, that an award of punitive

damages may not be entered against a domestic company

taken over by the RTC, because the burden of such dam-

ages would necessarily fall on creditors who are not re-

sponsible for the wrongdoing and who are not appro-

priate targets of punishment or deterrence. /d. at 190;

accord Matter of GAC Corp., 681 F.2d 1295 13801 (11th

Cir. 1982) (punitive damages may not be awarded

against a company in a Chapter X reorganization pro-

ceeding since “the effect of allowing a punitive damages

claim would be to force innocent creditors to pay for the

bankrupt’s wrongdoing”); Lanz v. Resolution Trust

Corp., 764 F. Supp. 176, 178 (S.D. Fla. 1991) (“punitive

* * * damages cannot be recovered against FSLIC as

conservator”).

The same general principle was given powerful ex-

pression by this Court in a somewhat different context

in City of Newport v. Fact Concerts, Inc., 453 U.S. 247

(1981). There, this Court held that the Civil Rights Act

42 U.S.C. § 1983 (1988), could not properly be interpreted

as authorizing the award of punitive damages against a

municipality for civil rights violations committed by its

employees. The Court found that imposing liability on a

public entity based solely upon the wrongful conduct of

its employees does not substantially further either the

retributive or deterrent aims of punitive damages and

thus could not be justified:

. a

11

Indeed, punitive damages imposed on a municipality

are in effect a windfall to a fully compensated plain-

tiff and are likely accompanied by an increase in

taxes or a reduction of public services for the citizens

footing the bill. Neither reason nor justice suggests

that such retribution should be visited upon the

shoulders of blameless or unknowing taxpayers.

City of Newport, 453 U.S. at 267.

Because Union has a negative net worth, and Skopbank

is Union’s parent and largest creditor, the award here

effectively imposes punitive damages liability initially on

Skopbank. However, because Skopbank has been taken

over by an arm of the Finnish Government, ultimately the

Finnish taxpayers will bear the burden of the punitive

award. Such a result advances neither the retributive nor

the deterrent objective of punitive damages. Agencies of

the United States would be spared punitive damages lia-

bility in like circumstances. National treatment accord-

ingly calls for giving Finnish corporate and governmental

entities the same consideration.

Moreover, United States Supreme Court precedent and

Alabama law require that, in their review of a punitive

damages verdict, the Alabama courts at least consider the

impact of the award on innocent third parties. Pacific

Mut. Life Ins. Co. v. Haslip, 111 S. Ct. 1032, 1044

(1991) ; Hammond v. City of Gadsden, 493 So. 2d 1374,

1379 (1986). Since a U.S.-owned entity would at a mini-

mum be entitled to have the impact of the punitive award

upon innocent third parties considered by a reviewing

court under these circumstances, the refusal of the Ala-

bama courts to accord even this minimum procedural

safeguard to a Finnish-owned entity is also inconsistent

with the obligation of national treatment.

D. Union May Raise The Issue Of Unequal Treatment

Under The Friendship Treaty.

Among the rights accorded to Finnish nationals under

the Friendship Treaty is the right under Article XVII to

aint aaa eee

12

“the organization of and participation in limited liability

and other corporations and associations for pecuniary

profit or otherwise.” (Pet. App. 48a.) Once a Finnish

national establishes such a local corporation under Article

XVII of the Friendship Treaty, the obligation of national

treatment contained in Article I requires that the local

subsidiary be “considered for purposes of the Treaty to be

la] compan[y] of the country in which |/it is] incorpo-

rated; [it is] entitled to the rights, and subject to the

responsibilities of other domestic corporations.” Sumitomo

Shoji Am., Inc. v. Avagliano, 457 U.S. 176, 188 (1982).

In Sumitomo, this Court refused to allow the U.S.-

Japanese Friendship Treaty to be used to give the Ameri-

‘an subsidiary of a Japanese company an immunity from

federal employment laws to which American companies

are not entitled. Such preferential and unequal status

would have offended the cardinal principle of ‘national

treatment” which lies at the heart of treaties of friend-

ship. The same principle of equal treatment that made

the subsidiary in Sumitomo subject to Title VII should

operate here to secure for Union the same protections

that a similarly situated American company would

enjoy."

This court accords “great weight” to treaty interpretations

which have been agreed to by both parties. Sumitomo, 457 U.S. at

185; Kolovrat v. Oregon, 366 U.S. 187, 194 (1961). In its submission

to this Court in Sumitomo, the United States took the same position

with respect to the rights of foreign-owned subsidiaries under the

U.S.-Japanese Friendship Treaty that Finland takes with respect

to the Friendship Treaty here: o

[The Treaty] ensures “national treatment” for Japan-controlled

companies incorporated in the United States—i.e., it places

them on an equal footing with American-controlled corporations

in the United States * * * [T]he national treatment provided

by the Treaty furnishes appropriate assurance against dis-

criminatory measures directed at the foreign-owned company

that could adversely affect the favorable investment climate the

Treaty was intended to create.

Brief for United States as amicus curiae at 13-14, Sumitomo Shoji

Am., Inc, v..Avagliano, 457 U.S. 176 (1982).

a

13

Later cases confirm that friendship treaties would be

violated if a domestic subsidiary were “treated * * * dif-

ferently under [{U.S. law] solely because it is a wholly

owned subsidiary of a foreign corporation.” Yamaha

Corp. of Am. v. United States, 961 F.2d 245, 258 (D.C.

Cir. 1992) ; accord MacNamara v. Korean Airlines, 1987

U.S. Dist. LEXIS 10218, at *6-7 (E.D. Pa. 1987), rev'd

on other grounds, 863 F.2d 1135 (8d Cir. 1988), cert.

denied, 493 U.S. 944 (1989).

Union can also raise Skopbank’s equal treatment rights

under the doctrine of jus terti standing. That doctrine

permits a party to assert the rights of a third person if

(1) “the enjoyment of the right is inextricably bound up

with the activity the litigant wishes to pursue,” and (2)

there is “some genuine obstacle” to the third person’s

assertion of his own right. Singleton ». Wulff, 428 US.

106, 114-16 (1976); accord Secretary of State of Md. ».

Joseph H. Munson Co., 467 U.S. 947, 956 (1984): Craig

v. Boren, 429 U.S. 190, 195-96 (1976).

Here, the relationship between Skopbank and Union is

such that Union “is fully, or very nearly, as effective a

proponent” of the right to equal treatment as Skophbank.

Singleton, 428 U.S. at 115. Moreover, as Skopbank’s

rights were not violated until the Alabama courts affirmed

the jury’s verdict, and as Skopbank is not and never was

a party in this case, Skopbank is not able to assert its

own rights. Accordingly, Union has jus terti standing to

assert Skopbank’s rights under the Friendship Treaty.

See Fortino v. Quasar Co., 950 F.2d 389, 393 (7th Cir. ‘

1991) (“subsidiary [may] assert any of its parent’s

[friendship] treaty rights * * * to the extent necessary

to prevent the treaty from being set at naught”).

14

Il. THE DECISION BELOW IS INCONSISTENT WITH

PRINCIPLES OF INTERNATIONAL COMITY.

A. Principles Of International Comity Require United

States Courts To Show Proper Consideration For

The Legitimate Interests Of Foreign Governments.

International comity has long played a critical role in

litigation in U.S. courts-that implicates the legitimate in-

terests of foreign states. This Court has defined comity as

“the recognition which one nation allows within its ter-

ritory to the legislative, executive or judicial acts of

another nation, having due regard both to international

duty and convenience, and to the rights of its own citizens

or of other persons who are under the protection of its

laws.” Hilton v. Guyot, 159 U.S. 118, 164 (1895)."

Comity is not confined to cases in which a foreign

sovereign is a party (as under the doctrine of sovereign

immunity) or in which the validity of an act of a foreign

sovereign on its own soil is directly called into question

(as under the act of state doctrine).'* On the contrary,

this Court and lower federal courts have applied the

doctrine of comity to a broad range of purely private

litigation whenever respect for the fundamental interests

of a foreign sovereign require them to do so."

12 Accord Somporter Ltd. v. Philadelphia Chewing Gum Corp.,

453 F.2d 435, 440 (3d Cir. 1971), cert. denied, 405 U.S. 1017 (1972)

(“Comity should be withheld only when its accceptance would be

contrary or prejudicial to the interest of the nation called upon to

give it effect.”); Laker Airways Ltd. v. Sabena, Belgian World

Airlines, 731 F.2d 909, 927 (D.C. Cir. 1984).

13 See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480

(1983) (sovereign immunity); Banco Nacional de Cuba v. Sab-

batino, 376 U.S. 398 (1964) (act of state).

ME .g., Asahi Metal Indus. v. Superior Court, 480 U.S. 102

(1987) (refusal to assert personal jurisdiction over aiiens); Piper

Aircraft Co. v. Reyno, 454 U.S. 235 (1981) (application of forum

non conveniens in deference to foreign forum); M’ S Bremen v.

Zapata Offshore Co., 407 U.S. 1 (1972) (respect for choice of non-

U.S. forum); Zschernig v. Miller, 389 U.S. 429 (1968) (non-

LE

15

This Court recently set out its analysis for applying

comity in the context of deciding whether resort to the

Hague Evidence Convention is required in obtaining evi-

dence located abroad for use in U.S. judicial proceedings.

In Société Nationale Industrielle Aérospatiale v. U.S.

District Court, 482 U.S. 522 (1987), both the five-member

majority and the four-member minority agreed that com-

ity dictated the answer. The majority favored a case

by case application of comity in which courts consider

the totality of the circumstances through a “particular-

ized analysis of the respective interests of the [two -

nations.|” 482 U.S. at 543-44. The minority, in its par-

tial concurrence, went even further, concluding that com-

ity required an analysis of “the foreign interests, the in-

terests of the United States, and the mutual interests

“ “ * in a smoothly functioning international legal re-

gime,” and that this analysis dictated a general rule fav-

oring exclusive use of the Hague Convention. 482 USS.

at 955 (Blackmun, J., concurring).

Both approaches taken in Aérospatiale are consistent

with the framework of comity analysis provided for by

the RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW

$403 (1987) and the various factors cited there.” See

enforceability of reciprocity requirements imposed by state law

against foreign governments) : Romero v. International Terminal

Operating Co., 358 U.S. 354, 381-84 (1958) (application of foreign

law where foreign nation’s interests are significantly implicated) :

Hilton v. Guyot, 159 U.S. 113 (1895) (recognition and enforcement

of foreign judgments); Gaw Shen Co. v. Bankers Trust Co., 956

F.2d 1349 (6th Cir. 1992) (refusal to enjoin foreign judicial pro-

ceedings) ; Ingersoll Milling Mach. Co. v. Granger, 833 F.2d 680

(7th Cir. 1987) (stay of U.S. proceedings in deference to foreign

proceedings).

1S Section 403(2) requires courts, in deciding whether to apply

local law to a person or activity having connections with a foreign

state, to consider among other things:

(c) the character of the activity to be regulated, the importance

of the regulation to the regulatory state * * * and the degree to

which the desirability of such regulation is generally accepted;

also RESTATEMENT (SECOND!) OF CONFLICT OF LAWS § 6

comment d (1971).

B. International Comity Counsels That U.S. Courts

Not Impose Punitive Damages Under Circumstances

In Which A Foreign State And Its Citizens Will

Bear The Burden And In Which No Compelling

Interest Of The United States Or Its Citizens Will

Be Served.

Under any application of international comity, it is

appropriate to balance the strength of a foreign govern-

ment’s interest in receiving a particular form of con-

sideration against the competing interests of the private

parties in obtaining, and the United States in according,

treatment unaffected by the needs of comity. Such a

balaneing here weighs heavily in favor of showing def-

erence to the acts of institutions of the Finnish Govern-

ment in respect of the takeover of Skopbank:

1. The Finnish Government maintains a strong inter-

est in the application of comity in this case. First, it has

an interest in protecting its taxpayers and the financial

soundness of its banking system from ruinous financial

liabilities in the form of punitive damages.

Second, application of international comity is called

for to protect Finland’s substantial interest in the in-

tegrity of its reorganization law. As early as 1883,

this Court ruled that a New York action to recover on

the bonds of a Canadian railroad company undergoing

d) the existence of justified expectations that might be pro-

tected or hurt by the regulation; (e) the importance of the

regulation to the international political, legal, or economic sys-

tem: ‘f) the extent to which the regulation is consistent with

the traditions of the international system; (g) the extent to

which another state may have an interest in regulating the

activity; and (h) the likelihood of conflict with regulation by

another state.

Section 403(3) further counsels that “‘a state should defer to the

other state if that state’s interest is clearly greater.”

a

17

reorganization in Canada was barred by the pendency

of the Canadian proceedings:

Uniess all parties in interest, wherever they reside,

can be bound by the arrangement which jt js sought

» have legalized the [reorganization] scheme may

fail. All home creditors can be bound by the arrange-

ment. What is needed is to bind those who are

abroad. : Re T lhe true spirit of inte rnational

comity me Te Ss that seh wes of this characte r ee

should AY. recoqnized in othe) countrie $s.

Canada S. Ry. v. Ge bhard, 109 U.S. 527. 639 (1&&3)

(emphasis added) ,""

2. At the same time, depriving a United States plain-

tiff of punitive damages cannot be regarded as a signifi-

cant hardship, whether viewed as a general proposition

or in the specific context of this case. Punitive damages

are by definition not compensatory in nature. In other

words, they are not required in order to make a tort

victim “whole.” They represent a windfall. As this

Court acknowledged in City of Newport, “|p|unitive

damages by definition are not intended to compensate

the injured party, but rather to punish the tortfeasor

whose wrongful action was intentional or malicious and

to deter him and others from similar extreme conduct.”

453 U.S. at 266-67,

* A long line of cases establishes that under comity, U.S. courts

owe deference to the overriding interest of foreign states in their

conduct of conservatorship and like proceedings. See, e.g., In re

Goerg, 844 F.2d 1562, 1568 (11th Cir. 1988), cert. denied, 488 U.S.

1034 (1989); Cunard S.S. Co. v. Salem Reefer Servs. AB, 773 F.2d

- 452, 456 (2d Cir. 1985); Cornfeld v. Investors Overseas Servs.,

Ltd., 471 F. Supp. 1255, 1260, 1262 (S.D.N.Y.). ayt'd without opinion,

614 F.2d 1286 (2d Cir. 1979) (citing “the public interest in

international cooperation” and “principles of international comity”

The Bankruptcy Reform Act of 1978. 11 U.S.C. §$ 304(c) (1988

also cites “comity” as a factor in a court’s decision whether to

enjoin or stay an action against a debtor respecting property in-

volved in a foreign proceeding.

18

3. Although Alabama may have a general retributive

and preventive interest in punitive damage awards, that

interest is necessarily diminished, if not wholly extin-

guished, when the party ultimately bearing the burden

of the award is not at fault.

4. The mutual interest of all nations in reciprocity,

commerce, and the smooth functioning of the interna-

tional regime likewise militate heavily in favor of apply-

ng comity principles to this case.

First, the United States has clearly evinced in its own

Federal Tort Claims Act a hostility to the recovery of

punitive damages in tort claims against the government

or its instrumentalities. 28 U.S.C. § 2674 (1988). This

statutory waiver of sovereign immunity in tort expressly

precludes the award of punitive damages in government

tort cases.

Similarly, the State of Alabama has statutorily waived

its immunity in tort, but expressly reserved for itself,

its counties and its municipalities virtually complete im-

munity from the imposition of punitive damages. Ala.

Code § 6-11-26 ‘Supp. 1991).

The attitudes of Congress and the States forbidding

punitive damages against governmental entities are a

strong indication of the consideration that courts in the

United States properly owe a sovereign foreign govern-

ment under like circumstances. The spirit of mutuality

underlying the comity doctrine supports according a for-

eign government the same degree of protection against

punitive damages that the United States and the State

of Alabama claim for themselves.

Second, international law and practice counsel strongly

against the imposition of punitive damages where their

impact will fall upon a foreign state and its taxpayers.

indeed, with the possible exception of international crimes

such as genocide, slavery and torture, principles of cus-

19

tomary international law prohibit the imposition of puni-

tive damages against a foreign state."

Under the U.S. Foreign Sovereign Immunities Act.

foreign states and their political subdivisions are cate-

gorically shielded, insofar as they may be defendants

in federal or state court, from exposure to punitive dam-

ages in tort. 28 U.S.C. $1606 (1988). Similarly, the

Convention for the Unification of Certain Rules Relat-

ing to International Transportation by Air (Warsaw

Convention) has been uniformly interpreted as prohibit-

ing the award of punitive damages.’* International

comity suggests that the same policy be extended to cases

in which a foreign government, though not a named de-

fendant, will as a practical matter bear the burden of a

punitive award.

Finally, punitive damages are an institution that is.

to put the matter simply, alien to most foreign legal

systems, including the Finnish one. XI INTERNATIONAL

ENCYCLOPEDIA OF COMPARATIVE LAW, Ch. 8, § 124 (A.

Tune, ed., 1986). A fundamental notion in most civil law

and civil law-influenced systems is that tort and crimina]

law form distinctive legal domains, and that the compen-

satory purposes of the former and the retributive and de-

terrent purposes of the latter should not be confused.

Accordingly, the only recoverable damages in tort cases,

indeed in all categories of cases, are compensatory in

'T Velasquez Rodriquez Case, Inter-American Court of Human

Rights, Decision on Compensation (Ser. C) (July 21, 1989); Rer-

STATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 90] Reporter’s

Note 5 (1987); E. Riedel, Damages, in 10 ENCYCLOPEDIA OF PUBLIC

INTERNATIONAL LAW 71 (1987); 8 M. WHITEMAN, DIGEST OF INTER-

NATIONAL LAW 1215 (1967).

ISE’.g., In re Korean Air Lines Disaster of Sept. 1, 1983, 932

F.2d 1475 (D.C. Cir.), cert. denied, 112 S. Ct. 616 (1991): In re Air

Disaster at Lockerbie Scotland on Dee. 21, 1988, 928 F.2d 1267

(2d Cir.), cert. denied, 112 S. Ct. 33 (1991); Floyd v. Eastern

Airlines, 872 F.2d 1462 (11th Cir. 1989). rev'd on other grounds,

111 S. Ct. 1489 (1991).

Sn

20

character. E. Aurejarvi, General Principles of the Law

of Obligations, in THE FINNISH LEGAL SYSTEM, 134-36

(J. Uotila, ed., 2d ed., 1985). The singular character of

punitive damages from the foreign perspective supports

application of comity principles, particularly when a for-

eign government is their effective target.

Thus, all considerations relevant to the traditional ap-

plication of international comity in U.S. courts—most

notably the strength of Finland’s interest in the integrity

of its banking system and reorganization !aw and in the

protection of its taxpayers, the insignificance of the U.S.

interests, and the absence of hardship to the Respondents

—-support review by this Court of the affirmance of the

punitive damages award in this case.

CONCLUSION

For the reasons stated above, the Republic of Finland

supports the petition for a writ of certiorari.

Respectfully submitted,

GEORGE A. BERMANN

Counsel of Record

COLUMBIA UNIVERSITY

SCHOOL OF LAW

435 West 116th Street

New York, N.Y. 10027

(212) 854-4258

Attorney for Amicus Curiae,

July 9, 1992 Republic of Finland