Petition for Writ of Certiorari — Grupo Protexa, S. A. v. All American Marine Slip

Supreme Court brief1994

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/ 94 207 JUL 27 199

No.

Supreme Court of the Anited States

October Term, 1994

GRUPO PROTEXA, S.A. A COMPANY ORGANIZED

UNDER THE LAWS OF THE REPUBLIC OF MEXICO,

AND CONDUX S.A. DE C.V., A COMPANY ORGANIZED

UNDER THE LAWS OF THE REPUBLIC OF MEXICO,

Petitioners,

vs.

ALL AMERICAN MARINE SLIP, A DIVISION OF MARINE

OFFICE OF AMERICAN CORPORATION, A NEW YORK

CORPORATION, AFIA, A DELAWARE CORPORATION,

AND CIGNA, A DELAWARE CORPORATION,

Respondents.

Petition for a Writ of Certiorari to the United States Court of

Appeals for the Third Circuit

PETITION FOR A WRIT OF CERTIORARI

KENNETH M. VAN DEVENTER

Of Counsel

SIDNEY M. SCHREIBER

NICHOLAS deB. KATZENBACH

RIKER, DANZIG, SCHERER, HYLAND

& PERRETTI

Attorneys for Petitioners

Headquarters Plaza

One Speedwell Avenue

Morristown, New Jersey 07962-1981

(201) 538-0800

5433 Vv

bz (800) 3 APPEAL + (800) 5 APPEAL + (800) BRIEF 21 4

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QUESTIONS PRESENTED

Petitioners, Mexican corporate citizens, were ordered by the

Mexican government to raise and remove their wrecked vessel

which sunk in Mexican offshore oil fields. The government acted:

(i) to remove an environmental and commercial threat to the oil

fields and surrounding waters and shores; (ii) to conduct a criminal

investigation into the cause of the loss; and (iii) to effect the

removal of the bodies of 27 Mexican citizens trapped in the hull.

Petitioners had insurance policies with the Respondents for

expenses incurred in removing wrecks, “when such removal is

compulsory by law.”

After notifying the insurance carriers of the loss and the

removal order, Petitioners complied with the removal order. After

the removal was completed, Petitioners presented a claim for the

monies due from the underwriters. Petitioners sued when, several

months after the removal operation was completed, Respondents

for the first time claimed that the removal order was invalid and

therefore the removal was not “compulsory by law.” The courts

below refused to adhere to traditional principles of comity, or to

apply the act of state doctrine and concluded, despite conflicting

expert opinions, that the removal order was not valid under

domestic Mexican law. The questions presented are:

1. Is it error for a U.S. district court to review de novo a

determination by a foreign government of its authority under its

law to issue a coercive removal order with respect to a shipwreck in

waters subject to its jurisdiction?

2. Is the official act of a foreign government within its own

jurisdiction which is consistent with international law and United

States policy entitled to binding effect in United States courts as to

all persons who were in a position to cause its validity to be litigated

at the time of its occurrence?

3. Is the Third Circuit Court of Appeals correct in holding that

both comity and the act of state doctrine apply only to the official

acts of foreign governments within their own jurisdiction where

there is also proof of a threat to the conduct of foreign relations by

the United States executive and legislative branches of

government?

4. Did the Third Circuit’s refusal to apply the act of state

doctrine abrogate Petitioners’ vested contractual rights in violation

of the Fifth Amendment to the Constitution?

5. Does a facially valid governmental order create legal

compulsion so as to satisfy the requirements of the insurance

contract here in question, notwithstanding an American court’s

determination eight years later that it was technically invalid under

Mexican law?

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LIST OF PARTIES

All of the parties in the United States Court of Appeals for the

Third Circuit are listed in the caption.

CORPORATE PARTY’S AFFILIATION

Petitioner Grupo Protexa, S.A. is the parent company of

Petitioner Condux S.A. de C.V. Petitioners have no other parent

companies, subsidiaries (other than wholly-owned subsidiaries) or

affiliates.

TABLE OF CONTENTS

Page

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PE 66003 866 Neate arise vi

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Constitutional, Provisions, Treaties, Statutes, Ordinances

and Regulations Involved ..................0008: 1

I og has dndnwsscudessciudwiees 2

Pic SEE kc chon eeapunreeaeebeudese oa nus 2

i: MEE: whe nk kc deeb eae 6464 es5 anv cubes 2

C. Removal Ordered by Mexican Government ..... 3

D. Underwriters’ Notice andAgreement .......... a

E. Final Adjustment—“Invalidity” Claim ......... 5

F. Summary Judgment Motion ................. 8

Contents

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Reasons for Granting the Writ ......................

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A. A United States Court May Not Judge the

Validity of the Act of a Foreign Government

Within Its Jurisdiction Under Its Local Law.

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Where the Act of State in Question Is Not

Offensive to United States or International

Law, Constitutional Separation of Powers

Considerations Are Irrelevant. ...........

The Third Circuit’s Failure to Recognize the

Mexican Act of State as Valid Abrogated

Petitioners’ Vested Contractual Rights and

Conferred a Windfall on Respondents. .....

es CI WS 6 hii oa chen cent a decce cas

Contents

Page

A. AFacially Valid Governmental Order, Even If

Technicaily Invalid, Satisfies the Criteria of

the insurance Contract. ................. 21

B. No Validity Requirement in Circuit Court

PUT ERG cv anencseeeddedeekende ves 22

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TABLE OF CITATIONS

Cases Cited:

Banco De Espana v. Federal Reserve Bank, 114 F.2d 438

Cn ED is Wi kn-e vita ded dvcdwanes ¢medeksee 15

Bernstein v. Van Heygen Feres Societe Anonyme, 163 F.2d

246 (2d Cir.), cert. denied, 332 U.S.772 (1947) ...... 15

Blad v. Bonefield, 36 Eng. Rep. 992 (1674) ............ 14

Continental Oil Co. v. Bonanza Corp.,706 F.2d 1365 (Sth

ee er re ee ee eee 22, 23

Earn Line S.S. Co. v. Sutherland §.S. Co., 254 F. 126

(S.D.N.Y. 1918), aff'd, 264 F. 276 (2d Cir. 1920) ..... 15

East Coast Tender Service v. Robert T. Winzinger, Inc., 759

Fa GS HUPEEED oo Son ccdccccececesecsees 12,21,22

Employees Ins. of Wassau v. Trotter Towing Corp.,834

ee SEN BEND cn ccvcccccovedsnecceeces 21

vii

Contents

Page

Grupo Protexa S.A. v. All American Marine Slip, » 04 F.2d

SE SE a taka kw tees eeaehatindess eine 22

Ingersoll Mill Mach. Co. v. M/V Bodena, 619 F. Supp. 493

GE Go's a0 We coe bere cates veccen' sees 21,22

Lake Charles Harbor & Terminal Dist. v. Imperial

Casualty & Indem. Co., 857 F.2d 286 (Sth Cir. 1988) .. 21,22

Northbrook Excess & Surplus v. Proctor & Gamble, 324

FL ROE so eGeas une did edandiwccece 21,22

Oetjen v. Central Leather Co., 246 U.S.297(1918) ..... 14

Oritani Savings & Loan v. Fidelity & Deposit Co., 989 F.2d

SPP SUE Sa Vewhecdecvetcvesviveunceeee 21

Progress Marine, Inc. v. Foremost Ins. Co., 642 F.2d 816

(Sth Cir.), cert. denied, 454 U.S. 860(1981) ......... 21,22

Ricaud v. American Metal Co., 246 U.S. 304(1918) ..... 14

Seaboard Shipping Corp. v. Jocharanne Tugboat Corp.,

ee 22

Underhill v. Hernandez, 168 U.S. 250 (1897) ......... 12, 14,19

Union Shipping & Trading Co. v. United States, 127 F.2d

PR IPEEE . i's naivd 0604 ddcen ee peseeuceens 15

W.S. Kirkpatrick v. Environmental Tectronics, 493 U.S.

PEED hhc aee cs edscaeccucceveen ens 12, 16, 17, 18, 19

viii

Contents

Page

Statutes Cited:

DEED nds 045 08 8400 cenwaede Cueaeers l

PE cack nuastdccwelysvnessadwecscenvs 8

United States Constitution Cited:

Pe es i nsenaaves Cabgeenns sees 2, 13,20

Other Authorities Cited:

Fox, Gregory H., Reexamining the Act of State Doctrine:

An Integr-*ed Conflicts Analysis, 33 Harv. Int’1 L.J. 521

COPE kaknehiae ance 0e6s40isudsneeneee ent 12, 13,14

Katzenbach, Nicholas deB., Conflicts On An Unruly

Horse: Reciprocal Claims and Tolerances in Interstate

and International Law, 65 Yale L.J.1087 (1956) ...... 13,14

Parks, Alex L., The Law and Practic ° of Marine Insurance

srr re 20

Swanson, Steven R., A Threshold Test for Validity: The

Supreme Court Narrows the Act of State Doctrine, 23

Wel 2. SET SLA UPEROPED ccccrccvccassccacs 13,14

~~ ere ee

Contents

APPENDIX

Appendix A — Order Denying Petition for Rehearing of

the United States Court of Appeals for the Third Circuit

or ee er ere

Appendix B — Opinion of the United States Court of

Appecls, Third Circuit Dated March 29, 1994 .......

Appendix C — Opinion of the United States District Court

for the District of New Jersey Filed May 12,1993 ....

Appendix D -—— Opinicn of the United States Court of

Appeals, Third Circuit Dated January 8,1992 .......

Appendix E — Opinion of the United States District Court

for the District of New Jersey Dated November 16, 1990

Appendix F — Opinion and Order of the United States

District Court for the District of New Jersey Filed

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Page

66a

120a

143a

]

OPINIONS BELOW

The opinion of the District Court denying Petitioners’ and

Respondents’ cross-motions for summary judgment is unreported.

(Appendix F, infra, pp. 198a-216a.) The first trial opinion of the

District Court is réported at 753 F. Supp. 1217. (Appendix E, infra,

pp. 143a-197a.) The first opinion of the Court of Appeals is

reported at 954 F.2d 130. (Appendix D, infra, pp. 120a-142a.) The

second opinion of the District Court, after remand from the Court

of Appeals, is not reported. (Appendix C, infra, pp. 66a-119a.) The

second opinion of the Court of Appeals is reported at 20 F.3d 1224.

(Appendix B, infra, pp. 3a-65a.) The order of the Court of Appeals

denying Petitioners’ request for a rehearing is unreported.

(Appendix A, infra, pp. 1a-2a.)

STATEMENT OF JURISDICTION

The judgment of the Court of Appeals was entered on March

29, 1994. (Appendix B.) A timely suggestion for rehearing in banc

and petition for rehearing was denied on April 28, 1994. (Appendix

A.) This petition for certiorari is being filed within the prescribed

period of ninety (90) days after April 28, 1994. The jurisdiction of

this Court is invoked under 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS, TREATIES,

STATUTES, ORDINANCES AND

REGULATIONS INVOLVED

This case did not turn on any international or United States

constitutional provisions, treaties, statutes, ordinances or

regulations. It turned solely on the determination that under federal

common law an act of the Mexican government was invalid under

Mexican law. It is not necessary to cite the pertinent articles of

Mexican law because Petitioners, though not agreeing, do not

challenge the court’s analysis of Mexican law. Petitioners maintain

that under traditional principles of comity and the act of state

doctrine which has constitutional underpinnings, and the Due

Process Clause of the Fifth Amendment, the lower courts should

have found the governmental act was valid under Mexican law.

STATEMENT OF THE CASE

A. The Policy.

Respondents, two insurance companies, were among a group

of seven underwriters that issued a Protection and Indemnity

insurance policy to Petitioners covering a fleet of vessels. Under

the Policy (SP-23), Respondents were obligated to indemnify

Petitioners for all costs and expenses of, or incidental to, the

removal of the wreck of any of the vessels when such removal was

“compulsory by law.”

B. The Wreck.

On December 14, 1985, Petitioners’ vessel, the Huichol I,

sank, during a storm, in one of the oil fields being developed by the

Mexican national oil company (PEMEX) off the coast of Mexico in

the Bay of Campeche adjacent to the Gulf of Mexico. At least 27

seamen — all Mexican citizens — died in the wreck. Their bodies

were trapped in the Huichol when it sank.

The Huichol sank approximately 50 miles off the Coast of

Mexico, and therefore well within Mexico’s 200-mile Exclusive

Economic Zone (“EEZ”). Under Article 56 of the United Nations

Convention on the Law of the Sea, Mexico has exclusive

jurisdiction in the EEZ for purposes of regulating all activities

related to its sovereign rights to explore, exploit, conserve and

manage the natural resources in the EEZ.

In 1985, the Campeche oil fields where the Huichol sank

contained more than 50 oil drilling platforms and were criss-

crossed with undersea high pressure gas and oil pipelines, many

uncharted. The United States Defense Mapping Agency’s “Sailing

Directions For the Caribbean Sea” described the area as follows:

Offshore oil fields are being extensively

developed in the Bay of Campeche. Multiple

drilling rigs, platforms and associated

structures, sometimes unlit, may be

encountered anywhere in the area. Numerous

pipelines, many uncharted, exist within the oil

fields, and between them and the shore.

Within the oil fields there is a zone containing a particularly

dense concentration of pipelines, platforms and other structures

related to the oil exploration activities. This zone is marked

“ANCHORAGE PROHIBITED” on all recognized nautical

charts. The “ANCHORAGE PROHIBITED” zone is treated by the

Mexican government as an “area of extreme safety.” The Huichol

sank not only 150 miles inside Mexico’s EEZ, and not simply in the

middle of the Campeche oil fields, but 1.5 miles inside this

particularly sensitive area.

C. Removal Ordered By Mexican Government.

On December 17, 1985, the General Director’s Office of the

Mexican Merchant Marine (“Marine Mercante”), which is the

functional equivalent of the United States Coast Guard, acting

through the local Port Captain, Captain Rebolledo, issued a written

order to Petitioners. The United States District Court for the

District of New Jersey found that the order was an official act of the

Mexican government directing Petitioners to immediately raise

and remove the wreck. There has been no appeal from this finding.

The removal order cited three articles of Mexican maritime

statutes as the legal authority for its issuance.

Because the wreck was located in an “extreme safety” area,

the Mexican government considered it to be an environmental and

commercial threat to the oil fields, underwater pipelines, and

surrounding waters and shores. This concern was heightened by

the fact that the hurricane season was rapidly approaching.

In addition, the Mexican “Procuraduria General De La

Republica” (“PGR”), which is the functional equivalent of the

United States Justice Department, ordered an investigation into the

cause of the casualty. Under Mexican law, the Port Captain is

required to cooperate and assist the PGR in such investigations.

The PGR asked Captain Rebolledo to order that the Huichol be

raised so that the investigation could be completed.

There were intense social and political pressures for the

removal to be completed without delay. The family members of the

dead seamen were putting intense pressure on the government

(including a visit by the President of the Republic himself) to effect

the recovery of the bodies of their loved ones and to investigate the

cause of the loss. The media was providing extensive coverage of

the situation which was a national tragedy. Representatives of the

Mexican Congress visited the Port Captain’s office to insure that

the removal operation was being undertaken expeditiously.

D. Underwriters’ Notice and Agreement.

On the day after the sinking, all seven of the underwriters on

the insurance policy were informed of the incident. They

immediately dispatched a surveyor/adjuster to the site to represent

their interest. The same day that the removal order was delivered to

Petitioners, a copy was given to the surveyor/adjuster, the

representative of the insurance carriers. He concluded that it

needed to be complied with without delay and informed Petitioners

to that effect. The surveyor/adjuster remained on site for the entire

removal operation. He never once suggested to Petitioners that the

underwriters whom he represented had concerns regarding the

validity of the removal order, or of the necessity to comply with it.

Petitioners submitted a proposal to the underwriters for doing

the removal operation themselves. Five of the seven underwriters

on the Policy directed Petitioners to immediately begin the

operation on the terms proposed in order to minimize any further

liability. Respondents’ only response was to suggest that

Petitioners get third party salvors involved as much as possible.

If Respondents had concerns regarding the validity of the removal

order, they had a contractual right under the terms of the Policy at

that time to ask Petitioners to make further inquiry into its validity

or to make a challenge to it in the Mexican courts. They never did.

With full knowledge of all of the underwriters, including

Respondents, Petitioners commenced compliance with the

removal order. Respondents, apparently concerned over the

efficiency of Petitioners’ removal operation, sent an additional

surveyor to the site with instructions to assist Petitioners as needed

and ensure Petitioners were aware of Respondents’ concerns, if

any, about the removal operation. Respondents’ specially

appointed surveyor arrived eleven days after the removal order

was issued. During his entire time on the site, he, like the surveyor/

adjuster, never questioned the validity of the removal order, or the

necessity of complying with it.

In sum, despite complete knowledge of what was happening

during the entire removal operation, neither Respondents’ on-site

representatives nor the home-office representatives ever queried

the validity of the removal order, or suggested that Petitioners

should make further inquiry into its validity or challenge it.

E. Final Adjustment — “Invalidity” Claim.

Upon completion of the removal, Petitioners presented a

claim on the Policy to the underwriters’ adjuster. He adjusted the

claim and approved it for payment. Five of the seven underwriters

on the Policy paid their share. Respondents did not. They requested

confirmation of the Port Captain’s authority to issue the order.

Following established administrative procedures, Petitioners

requested an opinion from the government on the issue of the Port

Captain’s authority. In 1986 the following opinion was received

from the office of the Marine Mercante, and forwarded to

Respondents. It stated in pertinent part:

According to the file, it is clear that the Port

Captain of Cd. del Carmen, Campeche, had

ground to intervene [citations omitted].

It is important to point out that article 86 of the

Law of Navigation and Maritime Commerce in

force, gives the Port Captain sufficient

attribution to order removal of the wreck when

at his judgment, it troubles the general

waterways of communication.

Concerning this matter the order from the Port

Captain is completely justified by the

following reasons among others:

a) There is a great number of gas and oil

pipelines, as well as drilling platforms and

other oil installations in the areas in which the

B/M “HUICHOL” sank.

b) There is a significant traffic in said area,

particularly of ships performing repair and

maintenance works in the platforms, pipelines

PT Been B: 5 ow

and other installations, so besides navigation, it

performed diving operations, welding,

removal of pieces etc.; these activities are been

made in the surface as well as inside and in the

bottom of the sea.

Due to the foregoing this General Direction of

Merchant Marine confirms the legal obligation

of Condux, S.A. de C.V. to rescue and remove

the ship B/M “HUICHOL” derived from the

order No. CP-3312-23-3350 dated December

17, 1985, issued by the Port Captainships of

Cd. del Carmen, Campeche.

According to article 262 of the Law of General

Ways of Communication, authorization is

given to the Port Captain to intervene in the

maritime accidents, as well as to perform

assistance to the federal office of the

government attorney, for which reasons he

must integrate an investigation as wide as

possible, in particular in this case in which

several tens of lives were lost; thus, the

removal in part was due because of the

investigation of the accident itself, besides

having been considered necessary for the

reasons of heavy traffic and activities that are

given in this area and the immediate danger

that said wreck would bring for the navigation

and the activities made in this area. Moreover,

if the Port Captain’s order had not been

followed, said authority would have proceeded

to remove the ship under his own authority,

requiring the owner of the ship the payment of

the corresponding costs, if the owner refused to

make such payment ... this, independently

from the penalties that may proceed for the

noncompliance of the order.

(Appendix F, infra, at pp. 203a-20S5a.)

Despite this unequivocal affirmation of the Port Captain’s

authority from the highest levels of the Mexican government,

Respondents still refused to pay. Instead, for the first time since the

removal order had been issued almost a year earlier, Respondents

claimed that the order was “patently invalid” and that Petitioners

should not have been complied with it. Petitioners brought this

lawsuit in the United States District Court for the District of New

Jersey. Jurisdiction was based on 28 U.S.C. § 1332.

F. Summary Judgment Motion.

After discovery, the parties cross-moved for summary

judgment. Petitioners argued that under the act of state doctrine,

the removal order, an act of the Mexican government, had to be

treated by the American courts as a valid act. Petitioners also

argued that under well settled rules of insurance contract

construction a facially valid governmental removal order, even if

ultimately proven to have been technically invalid, satisfied the

plain meaning of the Policy language. Respondents countered

with, inter alia, the argument that because the removal order was

“patently invalid” and not backed by meaningful sanctions, no

reasonable person would feel compelled to obey it.

The trial court flatly rejected Respondents’ “patent invalidity”

and “no sanctions” arguments, stating:

It should be noted at this point that this court

finds that [Respondents’] argument that the

Order in the current action was so patently

invalid on its face that no reasonable owner

could believe that failure to comply with such

would possibly expose him to any liability

belied by the fact that [Respondents]

themselves took several months to review the

order trying to determine its validity... .'

Here, [Petitioners] were presented with a

formally drawn Order which had the official

seal of the Port Captain attached.

* * ™

In this action, the presence of a removal order

from the Port Captain could certainly have

created a situation in which a reasonable owner

of a wreck felt that a present and unconditional

duty existed. In general, failure to comply with

a government order exposes one to sanctions

for disobedience, i.e., fines, penalties, etc.

Moreover, due to the “presumption of validity”

which attaches to official acts, a party under a

governmental or judicial order is not generally

allowed to disobey such while questioning it.

[Citations omitted]. This Court, therefore,

agrees with the [Petitioners’] contention that it

is legally meaningless for [Respondents] to

claim, in hindsight, that the order or the

sanctions which it threatened may not have

been enforceable. The [Petitioners’] potential

for exposure to liability must be viewed in light

1. It was not until several months after the operation was completed that

Respondents claimed to have obtained legal advice questioning the validity of

the removal order. They refused, however, to produce the alleged legal opinion

and still have not done so to this date.

of the Port Captain’s Order which certainly

could be viewed as imposing a present and

unconditional duty upon [Petitioners].

(Appendix F, infra, at pp. 214a-215a.)

Notwithstanding the court’s acceptance of that rationale,

which was then and remains to this day the essence of Petitioners’

position, the trial court also denied Petitioners’ motion on the basis

that even if the order were valid, an insured would still have to

demonstrate that it reacted reasonably to the Order in order to meet

the “compulsion by law” threshold.

G. Trial I.

After a trial (“Trial F’’), the court held that Petitioners were not

entitled to coverage because: (i) the removal of the wreck was not

“compulsory by law” because the costs of compliance outweighed

the sanctions for disobedience, so Petitioners should have ignored

the order, or challenged it if pressed; and (ii) Petitioners failed to

act as a “prudent uninsured” in conducting the removal operation.

(Appendix E.)

H. Appeal I.

The trial court’s decision was reversed by the United States

Court of Appeals for the Third Circuit (“Appeal I’). The Third

Circuit held that: (i) if, as the trial court had assumed on the record

before it, the Mexican government had issued a valid removal

order, that would per se constitute legal compulsion; and (ii) the

Policy provision containing a “prudent uninsured” condition

pertained only to settlement of claims rather than coverage. It

remanded for a new trial on all issues with instructions to make

threshold determinations as to: (i) whether the removal order

directed removal, and, if so, (ii) was the removal order valid (or

eam Ae a an. WS BORO lnahotntelne

does the act of state doctrine mandate a presumption of validity).

(Appendix D.)

I. Trial Il.

The second trial (“Trial IT’) was essentially a battle of foreign

law experts. The trial court determined that the Port Captain’s

order was a governmental order directing Petitioners to remove the

wreck.” Despite that finding, the trial court refused to apply the act

of state doctrine because: (i) the issue was of no interest to the

Mexican government; and (ii) it would be unfair to respondents to

apply the act of state doctrine, and the removal order was invalid

under Mexican law. (Appendix C.)

J. Appeal I.

The Third Circuit affirmed (“Appeal I?’). Ignoring the comity

underpinnings of the act of state doctrine, it held that the doctrine

did not apply because Petitioners had not submitted any proof that

there was a threat to the conduct of foreign relations by the

Executive and Legislative branches of the United States if the act

of state principle were not applied. It also held that in order to meet

the per se rule of coverage for removals undertaken pursuant to

governmental order, the order had to be both facially and

technically valid. (Appendix B.)

2. Respondents never suggested at either trial that the removal order was

not an act of state. In any case, at Trial J and Trial II the trial court heard

testimony establishing that Mexico’s jurisdiction over activities related to

Mexico’s sovereign rights in its exclusive economic zone is exercised through

the port captains. That testimony led the trial court to conclude that “the Port

Captain occupies a position of importance in the maritime industry and speaks

with the force of law.” (emphasis added). Furthermore, in Trial I], Respondents’

legal experts both admitted that an order issued by the Port Captain would be “an

act with the authority of the Mexican government.” There is no reasonable doubt

the order was an act of the Mexican state.

K. Rehearing Request.

Protexa petitioned for rehearing and suggested rehearing in

banc. It argued that the Third Circuit’s requirement that only valid

governmental orders create legal compulsion was not only in

conflict with decisions of other circuits, but was also inconsistent

with the Third Circuit’s own “compulsory by law” precedent in

Appeal I, and East Coast Tender Service v. Robert T. Winzinger,

Inc., 759 F.2d 280, 286 (3d Cir. 1985). The request and suggestion

was rejected by an eleven to two vote.’ (Appendix A.)

REASONS FOR GRANTING THE WRIT

The Third Circuit decision in Appeal I] turns on the premise

that notions of international comity, full faith and credit, and

respect for a foreign sovereign, have been completely usurped by

constitutional separation of powers considerations when

undertaking an act of state analysis in a situation not involving

international law or public policy of the forum. The Third Circuit’s

distortion of the act of state doctrine treats foreign coercive orders

as subject to collateral attack where domestic orders would not be.

The Third Circuit’s proposition conflicts with a long line of United

States Supreme Court decisions from Underhill v. Hernandez, 168

U.S. 250 (1897), through W.S. Kirkpatrick v. Environmental

Tectronics, 493 U.S. 400 (1990). There is also conflict and

confusion among the circuits and among international law scholars

on exactly this issue.‘

3. One judge voting for rehearing was Judge Becker, the author of East

Coast Tender and a member of the Protexa Appeal I panel.

4. For a discussion of the role of comity in act of state cases, including a

review of the pertinent Circuit and Supreme Court precedent, see Gregory H.

Fox, Reexamining the Act of State Doctrine: An Integrated Conflicts Anaiysis,

(Cont'd)

saver:

Nevertheless, when a case turns, as did this case, on the

validity of a foreign sovereign’s act under the sovereign’s own law,

as opposed io international law or public policy, there is almost a

century of unwavering Supreme Court precedent that requires the

Court to treat that act as lawful under the local law. If the Third

Circuit’s decision in this case is allowed to stand, that precedent

will be flouted, comity will be undermined if not eliminated

altogether, and the American legal system will be viewed as

becoming parochial and lacking legitimacy in the international

legal system. Simply put, New Jersey district court judges should

not be telling the Mexican government that its acts, directed

towards protection of its citizens and natural resources under its

jurisdiction, are illegal under Mexican law.

The misunderstanding of the Third Circuit not only distorts

the act of state doctrine and the whole of comity, but has a

substantial imput on insurance contracts for maritime purposes and

perhaps others. Indeed Petitioners have been deprived of their

unambiguous rights under the insurance contract in violation of the

Due Process Clause of the Fifth Amendment to the Constitution.

Moreover, the Third Circuit’s ruling that only governmental

orders determined by United States courts to be valid under a

foreign government’s law create legal compulsion conflicts with

precedents of this Court, and that of other circuits, is contrary to a

(Cont'd)

33 Harv. Int’] L.J. 521, 527 (1992) (assumes Supreme Court has “replaced the

comity rationale with separation of powers concerns”); Steven R. Swanson, A

Threshold Test for Validity: The Supreme Court Narrows the Act of State

Doctrine, 23 Vand. J. Transnat’! L. 889 (1991) (“Proper application of the

doctrine requires more sensitivity to the concerns of comity”); see also Nicholas

deB. Katzenbach, Conflicts On An Unruly Horse: Reciprocal Claims and

Tolerances in Interstate and International Law, 65 Yale L.J. 1087 (1956)

(examines, inter alia, development of comity and act of state doctrine, and

predicts development of a “political aspect” to doctrine in addition to, not as

replacement for, traditional comity principles).

public policy that encourages citizens to obey governmental

orders, and dramatically alters in favor of marine insurors the legal

rights, obligations and expectations of parties to marine insurance

contracts.

I. ACTOFSTATE

A. A United States Court May Not Judge the Validity of the

Act of a Foreign Government Within Its Jurisdiction Under Its

Local Law.

In the classic statement of the act of state doctrine, Chief

Justice Fuller affirmed that traditional comity considerations

require that

[e]very sovereign state is bound to respect the

independence of every other sovereign state,

and the courts of one country will not sit in

judgment on the acts of the government of the

other within its own territory.

Underhill v. Hernandez, 168 U.S. 250, 252 (1897); see also Ricaud

v. American Metal Co., 246 U.S. 304, 309 (1918) (“when it is made

to appear that the foreign government has acted in a given way on

the subject-matter of the litigation, the details of such action or the

merit of the result cannot be questioned but must be accepted by

our courts as a rule for their decision”); Oetjen v. Central Leather

Co., 246 U.S. 297, 303-04 (1918) (act of state doctrine rests “at last

5. Comity, a doctrine with ancient roots, Blad v. Bonefield, 36 Eng. Rep.

992 (1674), springs from the notion that mutual respect between sovereigns for

each other’s legal systems will foster the development of an international legal

system. An understanding of the act of the state doctrine is impossible without an

understanding of comity and its vital role in the development of international

law. See generally Fox, supra note 4, Swanson, supra note 4, and Katzenbach,

supra note 4.

upon the highest considerations of international comity and

expediency”).

A well-established corollary to that doctrine is that American

courts will not entertain challenges to the validity of the official act

of a foreign sovereign under the local law of that sovereign.

Bernstein v. Van Heygen Feres Societe Anonyme, 163 F.2d 246, 249

(2d Cir.) (“We have repeatedly declared, for over a period of at

least thirty years, that a court of the forum will not undertake to

pass upon the validity under municipal law of another state of the

acts of officials of that state, purporting to act as such.”), cert.

denied, 332 U.S. 772 (1947). Judge Learned Hand expressed the

rule as follows:

When public officers of a foreign country

perform official acts in avowed pursuance of

their authority, the court of another power will

accept these acts as lawful and will not

undertake to examine their validity under the

local law.

Union Shipping & Trading Co. v. United States, 127 F.2d 771,774

(2d Cir. 1942); Earn Line S.S. Co. v. Sutherland S.S. Co., 254 F.

126, 129 (S.D.N.Y. 1918) (Hand, J.) (“The act of another sovereign

within its own territory is of necessity legal.”), aff'd, 264 F. 276 (2d

Cir. 1920); Banco De Espana v. Federal Reserve Bank, 114 F.2d

438, 443 (2d Cir. 1940) (“It has been squarely held that courts of

this country will not examine the acts of a foreign sovereign within

its own borders, in order to determine whether or not those acts

were legal under the municipal law of the foreign state.”).

The decision below turned solely on the determination that the

act by the Mexican government was invalid under domestic

Mexican law. There was no suggestion that the act was contrary to

international law or the public policy of the United States or that it

nn ae

deviated from widely held standards of morality.® To the contrary,

both lower courts determined that the Mexican government was

motivated by legitimate health, safety and policy concerns. It was

clear error for the courts below to ignore comity, and decide a case

based solely on the determination that the Mexican government

did not know its own law when it issued the removal order.

B. Where the Act of State in Question Is Not Offensive to

United States or International Law, Constitutional Separation

of Powers Considerations Are Irrelevant.

The Third Circuit Court of Appeals seeks to avoid the act of

state_doctrine by saying that the Port Captain’s order does not

involve separation of powers and sensitive foreign policy

considerations. But this point is irrelevant to the issue in this case,

namely whether a United States Court can question the validity of

the foreign act of state under that foreign sovereign’s control.

Separation of powers concerns are only implicated when a

challenge is made to the validity of a foreign act of state under

international law, or on the basis the act is repugnant to the public

policy of the United States. Under those circumstances, traditional

comity principles may not preclude examination of the act, but

because such inquiry may create political issues, separation of

powers concerns might. But that is not the case here where the

determination of the validity of the Mexican government removal

order was solely under Mexican law. In fact, in cases like this one,

where the foreign act in no way offends international law or United

States public policy the case for adhering to comity is strongest.

The Third Circuit misinterpreted W.S. Kirkpatrick v.

Environmental Tectronics, 493 U.S. 400 (1990), as standing for the

6. In fact, there was compelling expert testimony that the order was valid

under international law.

proposition that comity has no place in act of state methodology.

Environmental Tectonics was the unsuccessful bidder for a

Nigerian government contract and sued Kirkpatrick, the successful

bidder, asserting, inter alia, that Kirkpatrick, bribed a Nigerian

official to obtain the contract. Kirkpatrick raised the defense of act

of state. The legal adviser to the State Department advised the

Court that judicial intervention would not embarrass or interfere

with the conduct of foreign affairs. Justice Scalia, writing for the

Court, observed that in every act of state case the Court would have

had to declare an official act invalid. Because there was no official

act of a foreign sovereign, the Court held that an act of state was

missing. Accordingly, the doctrine was inapplicable.

Justice Scalia noted that while at one time the act of state

doctrine rested only “on the highest considerations of international

comity and expediency,” the doctrine has since evolved to include,

as a consequence of the separation of powers, a sense that the

Judicial branch shall not act when such action may hinder the

conduct of foreign affairs.

The separation of powers underpinnings of the act of state

doctrine developed in the context of governmental actions

allegedly in violation of international law, usually the seizure of

property located in the foreign state and seized in circumstances

which would violate the United States’ view of international law.

When the foreign act was questioned in a United States court

(usually because the property showed up in this country with a new

owner), the courts have refrained from acting. This is not such a

case, because no violation of international law is alleged and there

is no potential dispute on that ground.

There is absolutely nothing in Kirkpatrick which suggests that

the principles of comity should not be applied when no violation of

international law or public policy is alleged. Conspicuous by its

absence in Kirkpatrick is any attempt to overrule the prior opinions

of the Court applying the act of state doctrine to those

circumstances or to restrict its application so as to eliminate the

typical comity situation. In fact, Kirkpatrick expressly affirmed

that “the policies underlying our act of state cases” are

“international comity, respect for the sovereignty of foreign

nations on their own territory and the avoidance of embarrassment

to the Executive Branch in its conduct of foreign relations.” 493

U.S. at 408. If anything, by refusing to expand the act of state

doctrine, Kirkpatrick reconfirmed the international comity and

respect for sovereignty roots of the doctrine, rather than

eliminating those roots as suggested by the Third Circuit.

It could scarcely have been the Third Circuit’s contention that

Kirkpatrick did away with comity. Yet by insisting that act of state

applies only to those official acts which violate international law or

U.S. public policy and seemingly forgetting comity entirely, the

Circuit appears to ignore the fundamental roots of the act of state

doctrine. It is only when comity is challenged because of alleged

violations of international law that the constitutional separation of

powers analysis comes into play on the theory that courts should be

cautious in giving offense to foreign sovereigns. Where the official

act, as here, is inoffensive to either international law or United

States public policy, it is entitled to respect in our courts. Under

rules of comity it is no less an act of state and cannot be collaterally

attacked; in essence, it is entitled to the same respect — the same

faith and credit — as the act of a sister state.

The validity of the coercive order obviously could have been

challenged in the Mexican courts, but there is no doctrine of U.S.

law which requires judicial affirmation before the order is entitled

to respect in our courts. Respondents did not need to be parties to

the order to be bound by it. They had the contractual power and

opportunity to insist that Petitioners question the validity of the

order in Mexican courts at the time. Under United States law that

was the only time and the only place that the validity of the

concededly coercive removal order could be questioned.’ '

The applicability of the act of state doctrine to the facts of this

case can be seen most clearly if we assume that the official act had

been questioned at the time and found valid under Mexican law by

the Mexican courts. Would such a finding be binding on the

Respondents, or would they, not having been formally parties to

the Mexican action, still be entitled to question its validity through

expert opinion when Petitioners attempted to enforce their

judgment in the United States? Surely in those circumstances it

- would be improper to litigate a second time in a U.S. court

depending on experts’ opinions the validity of the act under

Mexican law. If that is the case, then the Court of Appeals is simply

saying that the validity of a foreign act of state is dependent on its

having the imprimatur of a court (the highest court?) of that

country. But that simply is not the law; the act of state cases assume

the validity of the act of a foreign sovereign (untested in courts)

within its own jurisdiction.

In sum, comity and respect for sovereignty required the courts

below to treat the Mexican government’s removal order as a valid

act of state. There was no need to engage in a constitutional

separation of powers analysis. The court’s failure to recognize and

apply the still viable doctrine of comity under the facts of this case,

which turns solely on the validity of a foreign sovereign act under

that sovereign’s local law of a matter subject to its jurisdiction,

caused the Third Circuit’s decision to be in direct conflict with

every single act of state doctrine case decided by the Supreme

Court from Underhill through Kirkpatrick.

7. The Policy contained a “claims control” clause that gave Respondents

the right and the responsibility to control the handling of the loss. Under this

clause, Respondents had an absolute right, if they were concerned about the

validity of the order, to require Petitioners to challenge the order in Mexican

courts.

C. The Third Circuit’s Failure to Recognize the Mexican Act

of State as Valid Abrogated Petitioners’ Vested Contractual

Rights and Conferred a Windfall on Respondents.

By writing out of United States law notions of comity and

international full faith and credit, the Third Circuit provided an

unexpected and unbargained for windfall to all marine

underwriters, including Respondents.* That might have been

appropriate if Respondents had bargained for the right to

collaterally attack the validity of foreign governmental acts before

providing coverage — but that is just not the case. When setting

premium rates, Respondents took into consideration that SP-23

would provide coverage for wreck removals undertaken pursuant

to an order of a foreign government every bit as much as it would

provide coverage for removals undertaken pursuant to an order of

the United States government or a United States court. The severe

restriction in coverage under SP-23 signalled by the Third Circuit

unjustly enriches the Respondents who collected those premiums

and abrogated Petitioners’ vested contract rights in violation of the

Due Process Clause of the Fifth Amendment.

8. There was also uncontradicted trial testimony from a marine insurance

expert that the Third Circuit’s refusal to treat the removal order as illegally

compulsive dramatically alters the expectations of parties to SP-23. In addition

to SP-23, the other standard form of wreck removal coverage is what is referred

to as “broad form” coverage which responds whenever an insured deems wreck

removal necessary. Alex L. Parks, in comparing the various wreck removal

coverages available in 1987 when he wrote his authoritative treatise on marine

insurance commented that the difference between “broad form” and

“compulsory by law” wreck removal coverage had become illusory because “the

courts (particularly in the Fifth Circuit) had so liberally interpreted what is

‘compulsory by law’ that the question may almost be rhetorical.” Alex L. Parks,

The Law and Practice of Marine Insurance and Average 1034 (1987).

Phe BOLT ea? Sa Te ines

CO 1 Ser A Baer see

II. COMPULSORY BY LAW

A. AFacially Valid Governmental Order, Even If Technically

Invalid, Satisfies the Criteria of the Insurance Contract.

Petitioners submit that a facially valid governmental order,

without more, satisfies the threshold for insurance coverage under

the wreck removal provisions of SP-23. SP-23, a pre-printed form

which was offered to Petitioners on a “take it or leave it” basis,

should be liberally construed in favor of coverage. Ingersoll Mill

Mach. Co. v. M/V Bodena, 619 F. Supp. 493, 505 (S.D.N.Y. 1985);

Lake Charles Harbor & Terminal Dist. v. Imperial Casualty &

Indem. Co., 857 F.2d 286, 288 (Sth Cir. 1988) (“Doubts are

resolved in favor of coverage.”); Employees Ins. of Wassau v.

Trotter Towing Corp., 834 F.2d 1206 (Sth Cir. 1988); Oritani

Savings & Loan v. Fidelity & Deposit Co., 989 F.2d 635, 642 n.3

(3d Cir. 1993); sec also Northbrook Excess & Surplus v. Proctor &

Gamble, 924 F.2d 633, 639 (7th Cir. 1991). The words of SP-23

should be construed in their “plain, ordinary and popular sense,”

Progress Marine, Inc. v. Foremost Ins. Co., 642 F.2d 816 (Sth Cir.),

cert. denied, 454 U.S. 860 (1981), and in such manner as will give

meaning to the reasonable expectations of the parties. East Coast

Tender Serv. v. Robert T. Winziger, 759 F.2d 280, 286 (3d Cir.

1985).

It is well established that governmental orders, even invalid

orders, constitute legal compulsion. This is not a case where the

removal order was transparently invalid or had only a frivolous

pretense to validity. Indeed, as discussed, supra, the trial court

flatly rejected that precise argument. Furthermore, there was a

sharp dispute between the experts whether the Port Captain had the

authority to issue the order. It might be noted that the trial court

could have reasonably believed the Petitioners’ expert. Therefore,

the removal order, even if it had been technically invalid, was

nevertheless legally compelling and therefore fit the “plain,

ordinary and popular” meaning of SP-23.

B. No Validity Requirement in Circuit Court Precedent.

The Third Circuit’s holding that governmental removal orders

do not, ipso facto, meet the “compulsory by law” threshold in SP-

23 unless the order is judicially declared valid, is also contrary to

all previous precedent on the issue, including Third Circuit

precedent. Including Appeal II, there are six decisions from three

different United States Circuit Courts of Appeals that have

considered what constitutes “compulsory by law” as the term is

used in SP-23. These cases are: Grupo Protexa, S.A. v. All

American Marine Slip, 954 F.2d 130 (3d Cir. 1992); East Coast

Tender Serv., Inc. v. Robert T. Winziger, Inc., 759 F.2d 280 (3d Cir.

1985); Continental Oil Co. v. Bonanza Corp., 706 F.2d 1365 (Sth

Cir. 1983); Progress Marine, Inc. v. Foremost Ins. Co., 642 F.2d

816 (Sth Cir.), cert. denied, 454 U.S. 860 (1981); and Seaboard

Shipping Corp. v. Jocharanne Tugboat Corp., 461 F.2d 500 (2d

Cir. 1972).

All three United States Courts of Appeals have said that the

existence of a governmental order directing removal is per se

“compulsory by law.” In addition to the per se rule; the Fifth and

Third Circuits have adopted a “more expansive” interpretation,

which employs a rule of reason whereby the term can encompass

“additional cases” beyond the per se rule of a governmental order.

(Appendix D, infra, at pp. 130a-136a.) According to these cases, it

would be unfair and impractical to require shipowners to wait for

the government to take action in order to obtain coverage, when

failure to remove the wreck could expose the shipowner to

9. The first court to speak of valid governmental orders was the Third

Circuit in Appeal I — and that was only because on the record before it the trial

had assumed a valid governmental removal order. Considering the expansive

treatment of “compulsory by law” in East Coast Tender, the Third Circuit could

not have intended to severely restrict coverage in Appeal II by creating a validity

requirement — at least not without some stated rationale for doing so.

SEES PS eee eS

MBLC PL ho CIN AC AINE AED ABEL

Ice AT BES een

statutory, criminal, or third-party liability. Bonanza, 706 F.2d at

1369-70 (“The owner, and consequently its insurer, would be

exposed to repeated damage claims without being able to rely on

policy coverage to eliminate the hazard unless a governmental

agency ordered removal.”). Under Appeal II, however, the insured

will not be able to rely on policy coverage even after the

government directs the removal of the wreck. To obey the order,

without first obtaining judicial approval of it, is to risk the

possibility that years later (in this case eight years later in a

courtroom in New Jersey), a judge may declare the order invalid.

This is the only compulsory by law case where the government

actually took direct action to force the owner to remove the wreck.

To hold that even when faced with such a command the insured

cannot be confident of coverage unless it can subsequently

demonstrate that the order is valid, under local law, or that it took

steps to challenge the validity of the order before complying, is

contrary to the plain meaning of the policy language and serves no

public purpose.

CONCLUSION

For the foregoing reasons, Petitioners respectfully request

that this Court grant its Petition for a Writ of Certiorari to the

United States Court of Appeals for the Third Circuit.

Respectfully submitted,

KENNETH M. VAN DEVENTER

Counsel of Record

SIDNEY M. SCHREIBER

NICHOLAS deB. KATZENBACH

RIKER, DANZIG, SCHERER,

HYLAND & PERRETTI

Attorneys for Petitioners

Grupo Protexa, S.A. and

Condux S.A. de C.V.

Dated: July 27, 1994

APPENDIX A — ORDER DENYING PETITION FOR

REHEARING OF THE UNITED STATES COURT OF

APPEALS FOR THE THIRD CIRCUIT DATED

APRIL 28, 1994

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 93-5332

GRUPO PROTEXA, S.A., acompany organized under the laws of

the Republic of Mexico; and CONDUX S.A. de C.V., a company

organized under the laws of the Republic of Mexico

Vv.

THE ALL AMERICAN MARINE SLIP, a Division of MARINE

OFFICE OF AMERICAN CORPORATION, a New York

Corporation; AFIA, a Delaware Corporation; CIGNA, a Delaware

Corporation 3

Grupo Protexa, S.A., and

Condux, S.A. deC.V.,

Appellants

On Appeal from the United States District Court

for the District of New Jersey

(D.C. Civil No. 86-04212)

SUR PETITION FOR REHEARING

BEFORE: SLOVITER, Chief Judge, and BECKER,

STAPLETON, MANSMANN, GREENBERG, HUTCHINSON,

SCIRICA, COWEN, NYGAARD, ALITO, ROTH, and LEWIS,

Circuit Judges, and POLLAK, District Judge*

*Honorable Louis H. Pollak, Senior United States District Judge for the Eastern

District of Pennsylvania, sitting by designation.

Appendix A

The petition for rehearing filed by the appellants, Grupo

Protexa, S.A., and Condux, S.A. de C.V., in the above captioned

matter having been submitted to the judges who participated in the

decision of this court and to all the other available circuit judges of

the court in regular active service, and no judge who concurred in

the decision having asked for rehearing, and a majority of the

circuit judges of the circuit in regular active service not having

voted for rehearing by the court in banc, the petition for rehearing

is denied. Judge Becker and Judge Hutchinson would grant

rehearing by the court in banc.

BY THE COURT:

(illegible)

Circuit Judge

DATED: April 28, 1994

at had

a A an a a Cena enn ans

APPENDIX B — OPINION OF THE UNITED STATES

COURT OF APPEALS, THIRD CIRCUIT DATED

MARCH 29, 1994

GRUPO PROTEXA, S.A. acompany organized under the laws of

the Republic of Mexico; and Condux S.A. de C.V., a company

organized under the laws of the Republic of Mexico

Vv.

ALL AMERICAN MARINE SLIP, A DIVISION OF MARINE

OFFICE OF AMERICA CORPORATION, a New York

Corporation; AFIA, a Delaware Corporation; CIGNA, a Delaware

Corporation.

Grupo Protexa, S.A., and Condux, S.A. de C.V., Appellants.

No. 93-5332.

United States Court of Appeals,

Third Circuit.

Argued Feb. 4, 1994

Decided March 29, 1994.

Sur Petition for Rehearing April 28, 1994

* * *

Kenneth M. Van Deventer (argued), Riker, Danzig, Scherer,

Hyland & Perretti, Morristown, NJ, for appellants.

Harold K. Watson (argued), Gregory F. Burch, Robin Beasley,

Liddel, Sapp, Zivley, Hill & LeBoon, L.L.P., Houston, TX, David

J. D’Aloia, Saiber, Schlesinger, Satz & Goldstein, Newark, NJ, for

appellees.

Appendix B

Before GREENBERG and Roth, Circuit Judges, and POLLAK,

District Judge*.

OPINION OF THE COURT

GREENBERG, Circuit Judge. |

I. INTRODUCTION

This matter is before us on appeal from a judgment entered

after we remanded the case to the district court when we reversed

that court’s prior judgment. The case involves claims by insureds

under a marine insurance policy to recover the cost of removing

their sunken vessel from a bay off the coast of Mexico. The policy

covered costs for a removal of a sunken vessel if the removal was

“compulsory by law.” The insureds claimed they had acted under

such compulsion because they were responding to an order to

remove the wreck issued by the Mexican authorities. While certain

of the several insurance carriers on the policy honored their claims,

two denied liability. Thus, the insureds brought this action against

those two companies. After a bench trial, the district court in a

published opinion found in favor of the insurance companies on

the ground that the removal was not “compulsory by law.” In

reaching this conclusion, the district court adopted an analytical

framework not requiring it to determine the validity of the removal

order.

The insureds appealed and we reversed the judgment of the

district court, holding that it rested on incorrect conclusions of law.

In particular we held that removal of the wreck would be

“compulsory by law” if directed by a valid removal order. We then

* Honorable Louis H. Pollak, Senior United States District Judge for the

Eastern District of Pennsylvania, sitting by designation.

AND in eh ERE tt RRR TNE oo Ce AR ta MTT RS DA GAT RTL el EE

aiisineetnitassi.

Appendix B

remanded the case for further proceedings. At a second bench trial,

the district court incorporated its findings from the first trial and

received additional evidence, including expert testimony

concerning the validity of the order under Mexican and

international law. In a subsequent unreported opinion, the district

court held that the act of state doctrine did not bar the court’s

inquiry into the validity of the order. It also held, in a determination

the insurance companies do not challenge, that the order, which

was ambiguous as to whether it required the removal, in fact

included that requirement. Ultimately, however, the district court

ruled in favor of the insurance companies, as it concluded that the

order was invalid. The insureds again have appealed. We will

affirm the district court’s judgment, as we hold that the act of state

doctrine does not bar our inquiry into the validity of the removal

order, the order was in fact invalid, and there is no other basis on

which we may conclude that the removal was compulsory by law.

II. BACKGROUND

In our earlier opinion, Grupo Protexa, S.A. v. All American

Marine Slip, 954 F.2d 130 (3d Cir.1992) (Protexa Appeal I), we

extensively recited the facts of the case as found by the district

court in its published opinion following the first bench trial. Grupo

Protexta, S.A. v. All American Marine Slip, 753 F.Supp. 1217

(D.N.J.1990) (Protexa I). Furthermore, as we have indicated, the

district court incorporated its findings from Protexa I into its

unreported opinion following the second trial. Grupo Protexa, S.A.

v. All American Marine Slip, No. 86-4212, 1993 WL 166275

(D.N.J. May 12, 1993) (Protexa II). Therefore, many of the facts

already appear in these two published opinions, so we freely will

quote from them in setting forth the background of the case.!

1. Inorderto make our opinion more readable, we usually will omit quotations

marks of the quoted material as well as citations to the underlying opinions. We also in

some instances will make nonsubstantive changes in the language quoted.

Appendix B

The circumstances leading directly to this litigation may be

traced to December 15, 1985, when the HUICHOL II

(HUICHOL), a diving support vessel, sank with a large loss of life

during a violent storm in the Bay of Campeche, an extension of the

Gulf of Mexico, approximately 45 miles off the east coast of

Mexico. The wreck of the HUICHOL came to rest 1.5 miles within

the eastern border of the Petroleos Mexicanos’ (Pemex) oil

exploratory zone. Pemex is the Mexican national oil company.

This area, though not Mexican territorial waters, is within the

internationally recognized Mexican Exclusive Economic Zone,

which extends 200 miles off shore. The HUICHOL was owned by

Condux S.A. de C.V., acorporation owned by Grupo Protexa, S.A.

(Protexa). Condux and Protexa are Mexican corporations and are

the insureds under the policy involved in this case. Protexa is in the

business of constructing and servicing the pipelines, platforms,

and related structures needed by Permex, and develops and

manages these projects through Condux. For convenience, we will

refer to the insureds together as “Protexa.”

The HUICHOL was insured under a marine insurance policy

with several layers of coverage. Under the policy, five percent of

the risk was placed with a Mexican insurance company, and four

primary-layer underwriters were responsible for the first

$2,500,000 of covered loss. The excess-layer underwriters were

responsible for losses exceeding $2,500,000. The excess-layer

underwriters were All American Marine Slip (AAMS), which

carried 30% of the excess layer, various Lloyds/London

underwriters, which carried 65% of the excess risk, and CIGNA/

AFIA, which had 5% of the excess layer. The insurance policy

contained a standard wreck removal provision covering expenses

Protexa incurred in the “removal of the wreck of the vessel . . .

when such removal is compulsory by law.” (emphasis added.)

AES nae it WS!

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Appendix B

Protexa’s insurance broker was notified on December 16,

1985, that HUICHOL had sunk the day before. The broker, acting

as liaison between the underwriters and Protexa, then called in a

specialized firm to survey the damage, adjust the loss, and prepare

a written report for the underwriters. The representative from this

marine surveying firm arrived at the wreck on December 16, 1985.

On the same day, the insurance broker notified the underwriters on

the policy, including AAMS and CIGNA/AFIA, that the

HUICHOL had sunk and that it had called in the marine surveying

firm.

When the marine surveying firm’s representative arrived at

the wreck he met with the various parties involved. Because the

wreck lay in a Pemex zone of heavy drilling activity, and he

believed that the Mexican government would want to remove the

bodies of the deceased seamen and conduct an investigation, he

concluded that the vessel would have to be removed. The broker

then sent a telex dated December 17, 1985, to Protexa suggesting

that if the wreck were to be raised and moved, an immediate

investigation should commence to determine if the removal was

compulsory by law. The telex advised that a valid order of removal

would have to be in writing and be issued by an authorized

governmental authority.

Immediately after the sinking, the Mexican Procuraduria

General de la Republica ordered an investigation of the sinking. On

December 17, 1985, the Port Captain for Ciudad del Carmen and

the offshore port of Cayo Arcas issued a written order that,

according to the English translation, required Protexa to post a

bond “to guarantee the cleaning up of the area and the salvaging of

[the] Vessel.”? Protexa Appeal I, 954 F.2d at 132-33. Ciudad del

2. Wehave repeated the full text of the order in the appendix to this opinion.

Appendix B

Carmen is a city Carmen is a city on the mainland near the place

where the HUICHOL sank.

Protexa’s representative interpreted the Port Captain’s order

as requiring immediate removal of the wreck, and on the same day

the order was issued, he so notified Protexa’s insurance broker and

requested an immediate meeting so that the broker could present

the removal order to the underwriters. The insurance broker

notified all the underwriters, including AAMS and CIGNA/AFIA,

of the removal order. Protexa also wanted to present its proposal to

perform the removal without resort to a third-party salvor.

The broker, the marine surveying representative and Protexa’s

representative met in Houston on December 18, 1985, where they

agreed that the order appeared to require removal of the wreck and

that Protexa’s proposed removal plan was sound. The broker

attempted to telephone the underwriters to discuss the proposed

plan, but was able to contact only three of them, not including

AAMS or the Lloyds/London underwriters. The broker explained

to the underwriters the circumstances of the removal order and the

need for beginning removal of the wreck without delay in order to

minimize expenses. The underwriters he reached agreed to waive

any requirement that Protexa obtain a second or third salvage bid,

and advised that Protexa should begin work immediately to avoid

further complications and costs.’

Protexa presented the underwriters with two alternatives

regarding the costs of removal: (1) a fixed-sum bid to remove the

wreck for $3,785,000 or (2) a daily rate of $224,608 for an

3. Prior to this meeting and telephone contact with the underwriters, the broker

sent Protexa a telex strongly suggesting that Protexa obtain at least one, and

preferably two, outside bids for the salvage of the vessel. He also reminded Protexa of

its obligation to act as a prudent uninsured.

tis ick age ie

PRA LTE RD NARA SAAR

TED BEN Sa

Appendix B

estimated period of 24 days, resulting in a cost of approximately

$5.4 million. The marine surveying representative sent these offers

to the underwriters by telex on December 19, 1985, and the wreck

removal operation began on that day. By December 20, 1985, all of

the underwriters except AAMS and CIGNA/AFIA had agreed to

the lump-sum bid predicated on there being a consensus in favor of

this option. CIGNA/AFIA took no position, and AAMS, instead of

accepting either of the alternatives posed by Protexa, responded by

advising that all necessary steps should be taken to minimize the

loss. Furthermore, AAMS expressed its desire to have a third-party

salvor involved to the extent possible in the removal of the wreck.

Inasmuch as AAMS and CIGNA/AFIA had not approved the

lump-sum bid, the broker and the marine surveying representative

told Protexa that it should consider the job to be on a day-rate basis.

On December 20, 1985, a Protexa staff attorney, Jorge Uriarte,

whom Protexa chose to review the Port Captain’s order, arrived in

the port of Carmen. Upon his arrival he was told of the Port

Captain’s order, of the underwriters’s approval of Protexa to raise

the wreck, and of an imminent meeting with family members of the

crew to announce that Protexa would be raising the wreck.

Nevertheless, before Protexa started wreck removal, it wanted to

rule out the possibility of a legal challenged to the order.‘ After a

45-minute review of the order and the statutes which defined the

office of the Port Captain and the duties of his office, Uriarte

concluded that “it was clear beyond a doubt that the order had to be

complied with.” Uriarte then visited the office of the Port Captain

in an effort to obtain suspension or rescission of the order but was

informed that any such relief would have to be sought from

officials in Mexico City. He also was informed that the Port

Captain expected removal to begin without delay or the navy

4. Protexa actually started removing the wreck before Uriarte reached

Carmen.

10a

Appendix B

would take over the removal and Protexa would be punished to the

full extent of the law.

In addition to providing Protexa with an opinion as to the

validity of the removal order, Uriarte listed five potential

consequences that could result from noncompliance: (1) if Protexa

did not begin removal of the vessel immediately, the Mexican

government could arrange to have the wreck removed and present

Protexa with the bill; (2) Protexa faced the potential for

catastrophic liability to third parties for any damage resulting from

movement of the wreck within the oil field; (3) Protexa would face

potential sanctions or fines, which could be imposed on a sliding

scale, for failure to comply with the removal order and to cooperate

with the investigation; (4) Protexa risked forfeiture of the vessel

and the bond; and (5) Protexa risked the destruction of its goodwill

with the government and with Pemex if it failed to comply with the

order. After concluding that the removal order was valid and, after

weighing the potential consequences of non-compliance, Protexa

decided not to challenge the order.

Although Protexa initially estimated that removal of the

wreck would take about three weeks, the operation ran into several

problems and progress was exceedingly slow. But Protexa lifted

and suspended the wreck in a crane on February 10, 1986.

Eventually, Protexa placed the wreck on the sea bottom in shallow

water outside the oil exploratory zone.

After Protexa completed the removal, the marine surveying

firm prepared its final proof of loss and forwarded copies to all the

underwriters. The total adjusted loss was $12,121,726, with the

first $2,500,000 paid by the primary-layer underwriters, thereby

leaving a balance of $9,631,726, 5% of which remained with the

Mexican insurer. The Lloyds/London underwriters, which

lla

Appendix B

satisfied their portion of Protexa’s claim, owed and paid 65% of the

remaining 95% of $9,631,726. Thus, if liable, AAMS and CIGNA/

AFIA respecticely would owe 30% and 5% of the remaining 95%.

Both AAMS anc CIGNA/AFIA, however, denied Protexa’s claim.

Protexa filed a complaint in the United States District Court

for the District of New Jersey against AAMS and CIGNA/AFIA,

and subsequently moved for summary judgment, contending that it

could recover the removal costs because the removal was

“compulsory by law.” Relying on cases construing this standard

policy language, Protexa argued that the Port Captain’s order in

itself established conclusively that the removal was compulsory by

law. Protexa also maintained that the act of state doctrine

precluded the court from questioning the Port Captain’s authority

to order the removal.

AAMS and CIGNA/AFIA filed cross-motions for summary

judgment. They argued that the cases adopted a balancing test of

reasonableness in which three factors: the likelihood of exposure,

the sanctions for failure to remove, and the cost of removal, must

all be examined in order to determine if removal was compulsory

by law. Thus, they maintained that even a valid removal order

would not show conclusively that removal was compulsory by law.

They argued, however, that the Port Captain’s order was invalid,

and that therefore there was no likelihood of exposure to sanctions

for failure to remove the HUICHOL. They also contended that the

act of state doctrine was inapplicable, and thus that they could

challenge the validity of the order.

In an unpublished opinion filed on August 26, 1988, the

district court denied both motions for summary judgment. The case

proceeded to a bench trial, following which the court , in Protexa I

explained its interpretation of when removal is compulsory by law:

12a

Appendix B

{T]he determination of whether removal of a

vessel was ‘compulsory by law’ must be

decided by looking to the state of affairs as they

would appear to a reasonable owner under the

circumstances and examining whether failure

to remove a wreck would likely expose such

owner to liability imposed by law sufficiently

great in amount and probability of occurrence

to justify the expense of removal. In other

words, in this action, would a reasonable owner

faced with the Port Captain’s December 17,

1985 Order (the ‘Order’), determine that

failure to remove the HUICHOL would likely

expose it to liability imposed by law

sufficiently great in amount and probability of

occurrence to justify the expense of removal.

Protexa I, 753 F.Supp. at 1230. Under this formula, the district

court believed that the absence of governmental authority to order

removal of the wreck would not be necessarily issue-dispositive

but rather would be merely one of the factors the court would

consider in determining whether removal of the HUICHOL had

been compulsory by law. Jd. at 1228. Consequently, the district

court assumed without deciding that the Port Captain’s removal

order was valid, and the court did not confront the act of state

doctrine. /d. at 1228.

Nevertheless the court held for the insurance companies, as it

concluded that the removal was not compulsory by law under the

foregoing formula. The court stated that “no phrase in the body of

the [Port Captain’s] order direct[ed] wreck removal.” Jd. at 1232-

33. The court observed that the order instead merely required the

posting of a bond. /d. at 1233. The court suggested that Protexa did

not consider adequately the possibility of challenging the order. In

13a

Appendix B

this regard it pointed out that inasmuch as Uriarte had no training in

the applicable areas of law, did not obtain expert advice, and

concluded that the order was valid after only cursory review, he

was not prepared properly when he met with the Port Captain. /d. at

1233-34. In addition, the court found that the potential sanctions

for noncompliance with the order and the potential liability to third

parties were much less than the cost of removal. /d. at 1236.

Furthermore, the court suggested that factors other than legal

compulsion—pressure from the families of the deceased seamen

and the possible commercial consequences of noncompliance—

influenced Protexa’s decision not to resist the Port Captain’s order.

Id. at 1232.

Protexa then filed its first appeal to this court. We reversed the

judgment of the district court and remanded for further

proceedings. Protexa Appeal I, 954 F.2d 130. We first addressed

whether removal of the HUICHOL was “compulsory by law,” and

in this undertaking we reviewed four opinions of courts of appeals

interpreting the phrase as used in a standard clause in marine

insurance contracts. See Seaboard Shipping Corp. v. Jocharanne

Tugboat Corp., 461 F.2d 500 (2d Cir.1972); Progress Marine, Inc.

v. Foremost Ins. Co., 642 F.2d 816 (Sth Cir.), cert. denied, 454 U.S.

5. Thecourt also held for the insurance companies on a second ground. As we

explained in Protexa Appeal I: “The court next held that even if the removal had been

‘compulsory by law,” Protexa was not entitled to recover due to a policy provision that

the court interpreted to mean that Protexa lost all right to recovery if it breached its

duty to act as a prudent uninsured. The court found that Protexa violated this duty

[w]hen [it] acted as its own salvor.’ [753 F.Supp.] at 1237. Among other things, the

court noted that ‘Protexa had no experience in deep water wreck removal operations,’

ignored AAMS’ request that a third-party salvor be involved as much as possible,

ignored bids by experienced salvors that were much lower than Protexa’s costs, did

not properly execute its removal plan, and failed to implement recommendations by

an experienced salvor. /d. at 1237-39.” 954 F.2d at 135. This ground of the district

court’s first decision is not at issue in the present appeal.

l4a

Appendix B

860, 102 S.Ct. 315, 70 L.Ed.2d 158 (1981); Continental Oil Co. v.

Bonanza Corp., 706 F.2d 1365 (Sth Cir.1983); and East Coast

Tender Serv., Inc. v. Robert T. Winzinger, Inc., 759 F.2d 280 (3d

Cir.1985). Ultimately, we determined that removal may be

considered compulsory by law in any «“ three circumstances: (1) if

it is directed by government order; (2) if it is required by statute or

regulation; or (3) if “a reasonable shipowner at the relevant time

would determine that the probable cost of removal would be less

than the probable tort liability if removal was not undertaken.” 954

F.2d at 138.

Consequently, we reversed the judgment of the district court

because it had adopted a test different from our interpretation of the

case law and had assumed the validity of the order and yet found

for the insurance companies. Inasmuch as a removal directed by a

government order is compulsory by law, we stated that “if the Port

Captain’s order in this case was a valid removal order, Protexa was

entitled to recover under the policy provision in question.” 954

F.2d at 138. We therefore remanded the case for a finding of

whether the order required removal and a determination of the

validity of the order.®

Inasmuch as we remanded the matter to the district court to

determine the validity of the order, we did not pass on the insurance

companies’ contention that the Port Captain lacked the authority

under Mexican law and under the United Nations Convention on

the Law of the Sea (UNCLOS) to order the removal of the wreck.

6. Because it did not need to address the issue under the analytical framework it

had adopted, the district court had not made the initial determination as to whether the

removal order was in fact an order to raise the wreck, as opposed to an order merely to

post a bond. In remanding on this issue, we noted that under Fed.R.Civ.P. 44.1, expert

testimony may be introduced regarding Mexican law to aid the court in interpreting

the Port Captain’s order. See Merck & Co. v. U.S. Int'l Trade Comm'n, 774 F.2d 483,

488 (Fed.Cir. 1985).

15a

Appendix B

Furthermore, we did not address the merits of Protexa’s argument

that the act of state doctrine precluded an American court from

inquiring as to the validity of the Port Captain’s order. The district

court was to determine that issue, too, on the remana, on which it

would also decide whether the Port Captain’s order directed

removal of the wreck. Protexa Appeal I, 954 F.2d at 139.’

On remand, the district court in its unpublished opinion,

Protexa II, again found for the insurance companies. The court first

7. However, we did note that “[tJhe act of state doctrine does not preclude a

court from determining whether in fact a government official directed certain action.

See [W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp., 493 U.S. 400, 409,

110 S.Ct. 701, 706-07, 107 L.Ed.2d 816); Interamerican Refining Corp. v. Texaco

Maracaibo, Inc., 307 F.Supp. 1291, 1301 (D.Del. 1970) (‘whether or not a foreign

official “ordered” certain conduct is an evidentiary question’ not prohibited by the act

of state doctrine).” 954 F.2d at 139 n. 5.

The district court’s second and independent reason, see footnote 5, supra, that

Protexa did not act as a prudent uninsured, for entering judgment for the insurance

companies is not at issue in the present appeal. However, in respect to this point, we

held that the district court erred in interpreting a provision in the contract to mean that

Protexa lost all right to recover any removal costs when it breached its duty to act asa

prudent uninsured. /d. at 139-40. Instead, we found that the language relied upon by

the district court appeared to refer only to the setiement of claims and not to the issue

of coverage. Id. at 140. Therefore, although we held that the district court’s findings

that Protexa’s removal operation was highly inefficient were not clearly erroneous,

we stated that Protexa’s inefficiency did not totally preclude recovery of removal

costs. /d. at 141.

We stated, however, that “the policy provision on removal may well be

restricted to reasonable removal costs, and it is not apparent from Protexa’s briefs that

it disputes such an interpretation.” /d. at 140. Consequently, we also remanded for the

district court to “determine the meaning of this provision and, if the provision is

limited to reasonable costs, [to] make findings regarding the amount of those costs.”

Id. Of course, the district court on remand did not have to reach this issue.

16a

Appendix B

made the now unchallenged finding that the Port Captain’s order

was a directive to raise the HUICHOL. The court further stated that

“[w]hile arguably the act-of-state doctrine could be applied here,

caution and fundamental fairness counsel against the use of this

judicially fashioned remedy.” Jd. at 140. The court held that the

policies underlying the doctrine were not implicated in this case

and that “for reasons of fair play and fundamental justice,” Protexa

should not be permitted to utilize the doctrine “as a sword rather

than a shield” to bar the insurance companies from asserting a

defense that the order was invalid.* Finally, the court determined

that the Port Captain’s order was invalid under Mexican law and

therefore could not constitute legal compulsion under the policy.

The court therefore entered judgment for the insurance companies

on May 14, 1993.

Protexa again appeals. We have jurisdiction under 28 U.S.C.

§ 1291, and we apply a plenary standard of review to the district

court’s interpretation of the insurance policy and its application of

controlling legal principles, as the facts germane to the resolution

of this matter are not in dispute. See New Castle County v. Hartford

Accident and Indem. Co., 933 F.2d 1162, 1183 (3d Cir.1991).9

“However, ‘in reviewing factual findings made by a district court,

we apply the clearly erroneous standard set out in Fed.R.Civ.P.

52(a).’ ” fd. (quoting Goodman v. Lukens Steel Co., 777 F.2d 113,

8. Id. 954 F.2d at 141. Resting its decision with respect to the act of state

doctrine on these points, the court did not reach the insurance companies’ argument

that the act of state doctrine should not apply because the order directed activity

outside of Mexican territory.

9. Neither party suggests that we must be concerned with the somewhat elusive

distinction between construction and interpretation on this appeal, see Ram Constr.

Co. v. American States Ins. Co., 749 F.2d 1049, 1052-53 (3d Cir. 1984), and, as we are

affirming the judgment, Protexa, as the appellant, cannot be prejudiced by our

exercise of plenary review.

saat iti aiaiaaiea atte

17a

Appendix B

128 (3d Cir.1985), aff’d, 482 U.S. 656, 107 S.Ct. 2617, 96 L.Ed.2d

572 (1987)). We will affirm the judgment of the district court.

Ill. COMPULSORY BY LAW

We first address Protexa’s argument that the district court

erred in basing its decision on the remand on the finding that the

order was invalid. According to Protexa, the case law construing

the phrase “compulsory by law” provides that legal compulsion

may be found through a “rule of reason” analysis, in which the

technical invalidity of the removal order does not necessarily

dispose of the coverage issue. Protexa states that the appropriate

inquiry under this broader interpretation is whether a reasonable

insured shipowner in circumstances such as those in this case

would conclude that “removal was reasonably required by law, or

. . . failure to remove would have reasonably exposed [the] insured

to liability imposed by law sufficiently great to justify the expense

of removal.” Protexa Br. at 12 (quoting Progress Marine, Inc., 642

F.2d at 820). Consequently, Protexa argues that even if the removal

order was “technically invalid,” Protexa still reasonably was

required by law to remove the wreck because it believed it had to

comply with the order. Therefore, it is entitled to recover under the

policy. This argument makes liability dependent on Protexa’s

subjective state of mind.

The insurance companies respond that our prior opinion

determined the law of the case, namely, that “removal of the

HUICHOL was ‘compulsory by law’ if removal was directed by a

valid order of the Port Captain.” Protexa Appeal I, 954 F.2d at 141.

They therefore contend that Protexa’s argument is barred because

Protexa is arguing, based solely on the invalid removal order, that

removal was nevertheless compulsory by law because Protexa

reasonably believed it had to obey the order. The insurance

18a

Appendix B

companies then state that under the case law Protexa must either

show that the removal order was valid, or else meet the balancing

test and show that the likelihood and severity of sanctions justified

the cost of removal. AAMS Br. at 11. While it might appear that the

insurance companies’ balancing test is not significantly different

from the test advanced by Protexa, in fact it is more demanding, as

it is objectively based.

Of course, the district court rejected Protexa’s claim under the

objective balancing test at the first trial when it held that the

potential sanctions for noncompliance with the order and potential

liability to third parties were much less than the cost of removal of

the wreck. We did not disturb these findings in Protexa Appeal I,

and the district court adopted these findings at the second trial.

Thus, if the objective balancing test is adopted, Protexa can prevail

only if it can successfully challenge those findings, or if the

removal was compulsory by law because the order was valid, or if

the insurance companies are barred by the act of state doctrine

from challenging the validity of the order.

Even assuming Protexa is not foreclosed by the law of the case

from advancing its argument that the removal was compulsory by

law on the ground that it reasonably complied with the removal

order, we do not read the case law to support the application of a

“rule of reason” analysis of the subjective sort Protexa advances. It

appears that Protexa has misconstrued the meaning and application

of certain language in Progress Marine to call for an improper

examination into its corporate state of mind.

Protexa is correct in stating that this court and the Court of

Appeals for the Fifth Circuit have adopted a test for determining

whether removal is “compulsory by law” that encompasses cases

beyond the per se rule of a valid governmental order. However, in

eScchb aebvileal ap hao th ebb ining atta ae

19a

Appendix B

quoting Progress Marine to support its argument that it believed

“removal was reasonably required by law,” Protexa has taken this

phrase out of its original context and given it a much broader,

unintended meaning: Rather, as we discuss below, the phrase refers

specifically to a situation in which there are particular statutes and/

or regulations which direct the insured to remove a wreck even

though a removal order has not been issued. Alternatively, the

phrase refers to a situation in which the costs which would flow

from not removing the wreck would justify the expenditure to

remove it.

In Progress Marine, the Court of Appeals for the Fifth Circuit

adopied an interpretation of the phrase “compulsory by law” going

beyond the restrictive interpretation of the Court of Appeals for the

Second Circuit that a removal was compulsory by law if directed

by a governmental order. See Seaboard Shipping Corp., 461 F.2d at

504. As we explained in Protexa Appeal I, in Progress Marine a

barge sank about 11 miles off of the Louisiana coast, the hurricane

season was approaching, and the submerged barge posed a threat

both to navigation and to neighboring oil production facilities and

workers. But there was no governmental order requiring removal.

Protexa Appeal I, 954 F.2d at 136. In holding that compulsory by

law is not restricted to situations in which a direct government

order has been issued, the Progress Marine court expanded the

term to encompass situations in which “removal was reasonably

required by law, or where failure to remove would have reasonably

exposed an insured to liability imposed by law sufficiently great to

justify the expense of removal,” 642 F.2d at 820 (emphasis added).

By a situation in which “removal was reasonably required by law,”

the court referred to statutory or regulatory sources of law which

arguably required removal. As a demonstration of this

understanding, the Progress Marine court went on to discuss the

various statutes and possible tort actions that the barge owner

20a

Appendix B

reasonably could have believed either compelled him to remove

the barge or subjected him to potential tort liability for “enormous

damages.” 642 F.2d at 820-21.

Furthermore, we already have stated explicitly that the phrase

“reasonably required by law” in Progress Marine refers

specifically to statutory or regulatory duties. In East Coast Tender

Serv. we recounted the Progress Marine holding by quoting the

phrase “reasonably required by law” and inserting bracketed

language stating: “[i.e., a legal duty imposed by statute].” East

Coast Tender Serv., 759 F.2d at 286.'° Applying this analysis, we

addressed the argument that the charterer of barges sunk in the

Delaware River was compelled to remove them by New Jersey

trespass and nuisance statutes requiring removal of sunken barges

from state riparian lands. Jd. 759 F.2d at 285-87.

Finally, in Continental Oil the Court of Appeals for the Fifth

Circuit held that “[r]emoval of a wreck is not compulsory by law

unless there is a clear legal obligation to remove, imposed by

statute or by judicial decision, on the party who effects removal.”

Continental Oil, 706 F.2d at 1377 (emphasis added). Because the

insured had not demonstrated that there was such an obligation or

that governmental authorities had ordered removal of the wreck,

10. The full quote stated:

The court concluded that removal is ‘compulsory by law’

when it is ‘reasonably required by law, [i.e., a legal duty

imposed by statute], or where failure to remove ...

reasonably expose(s] an insured to liability imposed by

law sufficiently great to justify the expense of

removal. ...’ Id.

East Coast Tender Serv., 759 F.2d at 286.

2la

Appendix B

the court held that removal was not covered by the insurance policy

in question. Jd. In making its analysis, the court again looked to

possible statutory and judicial bases for imposing both criminal

and civil liability upon the insured.

Thus, we believe that Protexa mistakenly has construed the

language of the case law too broadly to embrace a “rule of reason”

analysis of the subjective sort it describes. Rather, contrary to

Protexa’s position, the language it quotes from Progress Marine

refers to the second two elements of the test for determining

whether removal was subject to legal compulsion which we

recognized in Protexa Appeal I, i.e., removal required by statute or

regulation or by the objective balancing test involving a

comparison of the costs of removing and not removing the wreck."

Of course, in this case there is no self-executing statute or

regulation requiring removal and the district court in unassailable

11. In Protexa Appeal I, after reviewing the Seaboard Shipping Corp.,

Progress Marine, Continental Oil, and East Coast Tender decisions, we stated:

In sum, we interpret all of the decision described above

to mean that removal is ‘compulsory by law’ if it is

directed by government order. Our decision in East

Coast Tender Serv., and the two earlier Fifth Circuit

decisions interpret this phrase to encompass additional

cases, viz., those in which removal is required by statute

or regulation, and those in which a reasonable shipowner

at the relevant time would determine that the probable

cost of removal would be less than the probable tort

liability if removal was not undertaken. Accordingly, if

the Port Captain’s order in this case was a valid removal

order, Protexa was entitled to recover under the policy

provision in question.

Protexa Appeal I, 954 F.2d at 138 (emphasis original).

22a

Appendix B

findings rejected Protexa’s claim under the objective balancing

test. Thus, Protexa can establish that the removal was compulsory

by law only if it can establish that the Port Captain’s order was

valid.

Because we have determined that the district court was not

compelled by precedent to engage in a “rule of reason” analysis of

the sort advocated by Protexa, we do not need to determine

whether Protexa could recover if that test were applicable.

However, we note that Protexa’s argument that an apparently legal

order may alone create legal compulsion seems problematic for

several reasons. First, our opinions in East Coast Tender and

Protexa Appeal I do not make any reference to giving weight to the

facial validity of a removal order. Second, in Continental Oil the

Court of Appeals for the Fifth Circuit specifically eliminated what

was originally a subjective component to the Progress Marine

test,"* and it appears to us that Protexa’s argument would revive

such an inquiry. Third, even if a subjective “rule of reason”

analysis were appropriate, the factual findings of the district court

demonstrate that Protexa did not take the steps necessary to arrive

at a reasonable conclusion as to the validity of the removal order

once it had been issued." The situation the district court described

12. The subjective element of the Progress Marine test had inquired “whether

removal was performed as a result of a subjective belief on the part of the insured that

such was reasonably necessary . . . .” Continental Oil Co., 706 F.2d at 1371 (quoting

Progress Marine, 642 F.2d at 820).

13. Weneed merely accept the district court’s factual findings to arrive at this

understanding. The district court was very critical of the actions of the Protexa

attorney who reviewed the order, determined its validity, and recommended that it

should not be challenged:

Uriarte’s review of the Order and the applicable statutes

(Cont'd)

2 i nici tee es oie Pie

iS web eVAS Ket hci ert

baa a

23a

Appendix B

in its findings on this point can be contrasted to the procedures

(Cont'd)

contained in the Order occurred within the span of 45

minutes. He then concluded the Order was valid and he

and other Protexa representatives announced to those

assembled that the wreck would be removed. Uriarte had

no training in admiralty law and was unfamiliar with the

United Nations Convention of the Law of the Sea. He

also failed to engage in an effort to seek the counsel of

someone who in fact did possess maritime legal

experience. At this point in time Protexa anticipated

spending a minimum of $3,785,800 to a maximum of

$5,390,592 for wreck removal and relief upon nothing

more than an oral opinion from a staff attorney. For

Protexa to proceed in this fashion is not only

extraordinary but incredible and casts serious doubt on

the exercise of its corporate judgment.

Protexa I, 753 F.Supp. at 1233. Moreover:

Uriarte’s visit to the Port Captain’s office was a pro

forma appearance but of little substance. He was so ill-

prepared and uninformed that his application was

doomed to failure even before it war presented. For

example, he was unaware of whether the Mexican

government had any means at its disposal to remove the

HUICHOL. He did not know what a third-party salvor

would charge to remove a wreck. No one at Protexa had

told him what it was going to cost Protexa to remove the

wreck. He was unaware that three miles separated the

HUICHOL from a Pemex platform or related structure.

In terms of sanctions, he admitted that forfeiture of the

HUICHOL to the government was not a sanction that

required the Order to be obeyed. Protexa further

stipulated that the threat of fines was not the primary

motivating factor for the removal of the wreck. Without

(Cont'd)

24a

Appendix B

normally followed in a wreck removal situation, as described in the

expert testimony at the first bench trial. See Protexa I, 753 F.Supp.

at 1233-36.

Even though we do not accept Protexa’s argument that an

apparently valid order can created legal compulsion, we recognize

that Protexa has raised a significant point, viz., that the actions of a

party faced with such an order should not be evaluated ex post

according to a standard stricter than that applied under the

objective balancing test to an insured’s actions in removing a

wreck when no order has been issued. We do not understand case

law as having foreclosed the possibility that an apparently valid

removal order, ultimately determined to be invalid, can be factored

into the objective test of balancing probable liability versus

removal costs to determine legal compulsion. While discussions of

probable liability in the cases we have cited focused on tort

liability, none of the courts dealt with a case in which there had

been a removal order.

Thus, although we now do not decide the issue conclusively, it

would seem reasonable to factor the probable sanctions for

disobeying an ostensibly valid removal order into the balancing

test for determining whether removal is compulsory by law, and

(Cont'd)

further belaboring this opinion with Uriarte’s cross-

examination, it is important to note that he did not make a

technical presentation to the Port Captain pertaining to

the wreck constituting a hazard to navigation. The

commercial and moral implications that AAMA asserts

motivated Protexa to remove the wreck are documented

in Uriarte’s cross-examination.

Id. 753 F.Supp. at 1234 (citations totrial transcript omitted).

25a

Appendix B

this opinion should not be taken as foreclosing that possibility.

Hence, removal could be considered “compulsory by law” even in

the face of a government order later determined to be invalid, so

long as on an objective analysis the reasonable costs of disobeying

the order and the probable tort liability outweighs the removal

expenses.

Nevertheless if we apply this standard and factor the existence

of the removal order into the objective balancing equation, we still

would not consider that the removal of the HUICHOL was

“compulsory by law.” We predicate this conclusion on the finding

of the district court in Protexa J that even assuming the removal

order was valid, Protexa did not satisfy the balancing test the court

applied." We reiterate that although we reversed the district court’s

original judgment on the ground that it applied an improper

standard, we now accept its findings of fact that supported its

14. Thedistrict court stated:

The sanctions [envisioned by Protexa in making its

decision] were in fact meaningless and lacked persuasive

value. Removal of the HUICHOL by the Mexican

government or through a third-party salvor in light of the

[very high] Protexa-estimated cost of removal was no

sanction. The potential for catastrophic liability to third-

parties if the wreck were to move within the oil field was

remote, particularly in view of the three mile distance

between the wreck and any Pemex installation . . . . The

sanctions of fines and the risk of loss of the bond

amounted to approximately $50,000. They could not in

this factual scenario, either individually or cumulatively,

amount to a sanction.

ProtexaI,753 F.Supp. at 1236.

26a

Appendix B

determination, as the district court’s opinion on the remand

readopted these fully justified findings. Protexa II at 5.

| In reaching our result that the removal was not compulsory by

law under the objective balancing test, we have not lost sight of the

fact that the sinking of the HUICHOL was a tragic event. We well

understand why Protexa believed it should raise the wreck.

However, we must stress that the issue before us is whether or not

Protexa is entitled to recover the costs of removing the wreck under

its insurance policy. Although Protexa clearly was under

tremendous moral and commercial pressure to raise the wreck, see

Protexa I, 753 F.Supp. at 1228, these factors do not tend to

establish that removal was compulsory by law under the terms of

the insurance policy. Accordingly, inasmuch as we reject Protexa’s

case insofar as based on the objective balancing test, Protexa can

only recover if the order is unassailable under the act of state

doctrine or if it was in fact valid. Thus, we now turn to Protexa’s

argument that the act of state doctrine prohibits judicial inquiry

into the validity of the order.

IV. ACT OF STATE

As we have indicated, in Protexa Appeal I we did not

determine whether the act of state doctrine barred the insurance

companies from challenging the validity of the removal order. On

the remand, the district court addressed the issue and held that

“(while arguable the act-of-state doctrine could be applied here,

caution and fundamental fairness counsel against the use of this

judicially fashioned remedy.” Protexa II at 40.

In its analysis, the court first stated that the policies

underlying the doctrine — “international comity, respect for

sovereign nations on their own territory and deference to the

27a

Appendix B

executive branch in the administration of foreign policy” — were

not implicated inasmuch as this case involves an insurance dispute

between private parties of no interest to the governments of

Mexico or the United States or to the international community.’°

Second, the district court found the doctine inapplicable, because

Protexa was attempting to use it “as a sword rather than a shield.”

Id. at 41. The court interpreted the case law as teaching that for

reasons of fair play and fundamental justice, a court is reluctant to

invoke the doctrine on behalf of a party seeking relief. In this

regard it noted that Protexa chose to bring the action in federal

district court in New Jersey, and thereby deprived a Mexican court

of the opportunity to adjudicate the validity of what to that court

would have been a domestic order, the review of which could not

have implicated the act of state doctrine. Thereafter Protexa

defended its selection of an American forum by resisting the

insurance companies’ motion to dismiss predicated on forum non

conveniens. The district court held that in these circumstances “it

would be unjust to permit Protexa the benefit of an American

forum and the protection of a doctrine that would unfairly impede

the defendants in their ability to assert a defense.” Jd. in view of

these conclusions the court did not reach a contention advanced by

the insurance companies that the doctrine by its terms could not be

applicable, as the order of remand directed conduct to be taken

outside of Mexican territory.

On this appeal Protexa again argues that the act of state

doctrine applies, so that the Port Captain’s order must be

15. The court stated that the decision of the Port Captain on a purely local

matter eventually will determine who will pay for the wreck removal, and that in

examining the validity of this decision the court “is not creating principles of domestic

and international law, but is applying them as they have been promulgated by their

respective entities.” Jd. at 41. ;

28a

Appendix B

considered a valid act of the Mexican government. Protexa

contends that this case involves more than a mere insurance

coverage dispute for several reasons. First, it claims that the

district court ruled as a matter of law that the Mexican government

does not possess the legal right to order a Mexican corporation to

raise its own wreck from offshore oil fields under Mexico’s

jurisdiction. Second, Protexa claims that an issue of Mexican

policy is at stake, namely, that nation’s powers within the 200-mile

Exclusive Economic Zone (EEZ). The EEZ is a maritime boundary

established under UNCLOS, and comprises an area beyond and

adjacent to the territorial sea, subject to the specific legal regime

set forth in UNCLOS.

Protexa also correctly notes that the sinking immediately

caught the government’s attention, leading to the removal order.

Protexa further reasons that Mexico has not demonstrated more

recent interest in the implementation of the Port Captain’s order

because Protexa complied with it. Consequently, Protexa asserts

that the decision of the district court represents “a breathtaking

intrusion into matters of Mexican s~vereignty and jurisdiction in

its EEZ and over its own citizens” «that it was clear error for the

court not to apply the doctrine. Protexa Br. at 21.

Protexa also argues that the trial court invented a fairness

exception to the doctrine “without precedent in any controlling

case law” and “clearly contrary to the mandate of the act of state

doctrine.” Jd. at 21. Rather, Protexa claims, the history of the

doctrine shows that the judicially-created act of state doctrine puts

the interests of amicable and orderly relations between nations

before considerations of fairness to private litigants. Thus, Protexa

asserts that the doctrine would be ineffective if it could be

circumvented simply because its implementation would be unfair

to the party prevented from challenging the act of the foreign state.

29a

Appendix B

Finally, Protexa responds that its choice of an American forum

was entirely appropriate. It points out that the insurance companies

are United States corporations with no assets or presence in

Mexico, the insurance policy was issued by an agent in the United

States for a premium in United States dollars, and the final

adjustment was undertaken by a United States firm and determined

in dollars. Furthermore, Protexa observes that even if it obtained

jurisdiction over the insurance companies in Mexico, it still would

have to execute any judgment it obtained in the United States.

Protexa Br. at 23-24.

We therefore turn to an analysis of the act of state doctrine and

its applicability in this case. As we have stated:

Under the [act of state] doctrine, the courts of

this country will refrain from judging the

validity of a foreign state’s governmental acts

in regard to matters within that country’s

borders.

Environmental Tectonics v. W.S. Kirkpatrick, Inc., 847 F.2d 1052,

1057-58 (3d Cir. 1988) (citations omitted) (Environmental

Tectonics Circuit Op.), aff'd, W.S. Kirkpatrick & Co. v.

Environmental Tectonics Corp., 493 U.S. 400, 110 S.Ct. 701, 107

L.Ed.2d 816 (1990) (Environmental Tectonics S.Ct. Op.). “The act

of state doctrine is not some vague doctrine of abstention but a

‘principle of decision binding on federal and state courts alike.’ .

Environmental Tectonics S.Ct. Op., 493 U.S. at 406, 110 S.Ct. at

705 (quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398,

427, 84 S.Ct. 923, 940, 11 L.Ed.2d 804 (1964)). “Act of state issues

only arise when a court must decide — that is, when the outcome of

the case turns upon — the effect of official action by a foreign

sovereign.’ Environmental Tectonics S.Ct. Op., 493 U.S. at 406,

110S.Ct. at 705.

30a

Appendix B

Regardingthe foundation of the doctrine, the Supreme Court

has explained:

This Court’s description of the jurisprudential

foundation for the act of state doctrine has

undergone some evolution over the years. we

once viewed the doctrine as an expression of

international law, resting upon ‘the highest

considerations of internation comity and

expedience,’ Oetjen v. Central Leather Co.,

246 U.S. 297, 303-304, 38 S.Ct. 309, 311, 62

L.Ed. 726 (1918). We have more recently

descibed it, however, as a consequence of

domestic separation of powers, reflecting ‘the

strong sense of the Judicial Branch that its

engagement in the task of passing on the

validity of foreign acts of state may hinder’ the

conduct of foreign affairs, Banco Nacional de

Cuba v. Sabbatino, 376 U.S. 398, 423, 84S.Ct.

923, 937, 11 L.Ed.2d 804 (1964).

Environmental Tectonics S.Ct. Op., 493 U.S. at 404, 110 S.Ct. at

704. “Therefore, the application of the doctrine depends on the

likely impact on international relations that would result from

judicial consideration of the foreign sovereign’s act.” Allied Bank

Int’l v. Banco Credito Agricola de Cartago, 757 F.2d 516, 520-21

(2d Cir.), cert. dismissed, 473 U.S. 934, 106 S.Ct. 30, 87 L.Ed.2d

706 (1985). “For this reason, the Supreme Court has not laid down

rigid rules to govern the doctrine’s application, but leaves it to the

lower courts to determine whether a conflict between the judicial

and political branches exists in a particular case.” Environmental

Tectonics Circuit Op., 847 F.2d at 1058. “If adjudication would

embarrass or hinder the executive in the realm of foreign relations,

the court should refrain from inquiring into the validity of the

3la

Appendix B

foreign state’s act.” Allied Bank Int'l, 757 F.2d at 521 (citing

Sabbatino, 376 U.S. at 427-28, 431-33, 84 S.Ct. at 939-40, 941-43;

Garcia v. Chase Manhattan Bank, 735 F.2d 645, 651 (2d Cir.

1984)).

We acknowledge that, as the district court recognized, the act

of state doctrine arguably is applicable in this case. However,

“sometimes, even though the validity of the act of a foreign

sovereign within its own territory is called into question, the

policies underlying the act of state doctrine may not justify its

application.” Environmental Tectonics S.Ct. Op., 493 U.S. at 409,

110 S.Ct. at 706. Assuming for purposes of this discussion that the

insurance companies’ extra-territorial argument is erroneous, we

believe that this is such a case, in that the rationale supporting

application of the doctrine is not present here. Therefore, we hold

that the act of state doctrine does not bar inquiry into the validity of

the Port Captain’s order.

As we have stated, the party invoking the act of state doctrine

has the burden to prove its applicability. Environmental Tectonics

Circuit Op., 847 F.2d at 1058 (“The party moving for the doctrine’s

application has the burden of proving that dismissal is an

appropriate response to the cizcumstances presented in the case.”);

see also Alfred Dunhill of London, Inc. v. Republic of Cuba, 425

U.S. 682, 694, 96 S.Ct. 1854, 1861, 48 L.Ed.2d 301 (1976);

Siderman de Blake v. Republic of Argentina, 965 F.2d 699, 713 (9th

Cir.1992), cert. denied, U.S. _, 113 S.Ct. 1812, 123 L.Ed.2d

444 (1993); Williams v. Curtiss-Wright Corp., 694 F.2d 300, 303 n.

4 (3d Cir.1982). “At a minimum, this burden requires that a party

offer some evidence that the [foreign] government acted in its

sovereign capacity and some indication of the depth and nature of

the government’s interest.” Liu v. Republic of China, 892 F.2d

1419, 1432 (9th Cir.1989), cert. dismissed, 497 U.S. 1058, 111

S.Ct. 27, 111 L.Ed.2d 840 (1990), quoted in Siderman, 965 F.2d at

32a

Appendix B

713. Furthermore, cognizant of the rationale supporting the

doctrine, a court also must analyze on a case-by-case fashion “the

extent to which in the context of a particular dispute separation of

powers concerns are implicated.” Allied Bank Int'l, 757 F.2d at

521. In other words, the court must determine whether there is

evidence of a potential institutional conflict between the judicial

and political branches such that a judicial inquiry into the validity

of a foreign state’s actions could embarrass the political branches

in their conduct of foreign affairs. See Environmental Tectonics

Circuit Op., 847 F.2d at 1058. This analysis “must always be

tempered by common sense.” Allied Bank Int’l, 757 F.2d at 521

(citations omitted). “ “The less important the implications of an

issue are for our foreign relations, the weaker the justification for

exclusivity in the political branches.’ ” Jd. (quoting Sabbatino, 376

U.S. at 428, 84 S.Ct. at 940).

The insurance companies maintain that Protexa has not met its

burden to demonstrate that the act of state doctrine applies here.

They contend that Protexa has not proven that the Port Captain’s

order even constitutes a Mexican act of state, nor that any

government potentially involved in the incident is concerned about

having the validity of the order adjudicated in the federal courts.'®

The insurance companies point out that the Mexican government,

through its Merchant Marine (“Marine Mercante”), is well aware

of this litigation for it permitted the Port Captain to come to the

United States to testify in the case. Thus, the companies argue that

the Mexican government is not concerned with having the validity

of the order adjudicated here. Protexa contends, however, that the

Port Captain’s order implicated Mexican national interests

concerning the safety of its citizens and its oil exploration in the

16. In addition to Mexico and the United States, Panama might have taken an

interest in the case, as the HUICHOL was registered there.

33a

Appendix B

EEZ. As evidence that the incident attracted the attention of the

Mexican government, Protexa submits in its reply brief a written

opinion of the Port Captain’s superiors, the Marine Mercante,

affirming the authority of the Port Captain to issue the order."”

Although the depth and nature of Mexico’s interest in this

matter are debatable, we will assume without deciding that it has a

substantial interest in this case.'* Nevertheless, Protexa has not

demonstrated — nor do we find — that this controversy implicates

separation of powers concerns of the sort necessary to support

invocation of the doctrine. This litigation is between private parties

for the sole purpose of resolving an insurance coverage dispute

which, in turn, depends upon the construction and application of a

single phrase in the policy. We see no reason for believing that a

judicial inquiry into the validity of the Port Captain’s order under

Mexican law, in order to determine whether Protexa may recover

wreck removal costs, would hinder the conduct of foreign relations

by the United States government. In any event, Protexa has not

offered evidence suggesting that our rejection of the act of state

doctrine would have that consequence, nor even a basis for

believing that diplomatic difficulties could arise in the aftermath of

this case.'9

17. Prior to oral argument, we denied the insurance companies’ motion to

strike material concerning the opinion of the Marine Mercante from Protexa’s reply

brief and supplemental appendix.

18. Thus, we also decline to address whether the issuance of aremoval order by

the Mexican Port Captain “can be, in certain circumstances, a sufficiently formal

expression of a government's public interests to trigger application of the doctrine.”

Environmental Tectonics Circuit Op., 847 F.2d at 1058. See Remington Rand Corp. v.

Business Systems, Inc., 830 F.2d 1260, 1265 (3d Cir. 1987); Mannington Mills, Inc. v.

Congoleum Corp., 595 F.2d 1287, 1294 (3d Cir. 1979).

19. Protexa at most asserts that a consequence of holding the Port Captain’s

(Cont'd)

34a

Appendix B

We also point out that Protexa’s contention that an issue of

Mexican policy is at stake as we are making a determination of the

scope of its powers within the EEZ is simply wrong. As will

become clear from the section of our opinion dealing with the

validity of the order, we are placing no limitations on the scope of

Mexican authority in the EEZ. Rather, we only are determining

_that the Mexican Congress itself did not establish a legal predicate

~ for the order. Thus, instead of attempting to circumvent Mexican

law, we honor that law and apply it.

Essentially, Protexa’s invocation of the act of state doctrine

would require this court to engage in mere conjecture about the

effect that inquiry into the validity of the order might have on

relations between the United States and Mexico. However, we

stated in Environmental Tectonics that invocation of the doctrine

requires proof of “a demonstrable, not a speculative, threat to the

conduct of foreign relations by the political branches of the United

States government.” 847 F.2d at 1061. Because we believe that no

such threat has been demonstrated, and we will not engage in

(Cont'd)

order invalid would be that future recipients of similar removal orders would

chailenge them, thereby exciting Mexico's interest. Yet such a possibility still does

not imply that the conduct of foreign relations by the United States government would

be hindered as a result.

Moreover, additional challenges to removal orders would seem to raise no such

threat, since it is perhaps exactly what should have happened in the present case and

should so occur in the future. It appears that Protexa could have challenged the order

under the Mexican law of “amparo,” the judicial proceeding by which Mexican

citizens seek relief from governmental orders. In fact, Protexa’s main legal expert

witness at trial was Dr. Ignacio Melo, a noted lawyer and expert in Mexican maritime

and amparo law who has been drafting amparos for 37 years and has handled 25-30

wreck removal order cases with 10-15 in the last six years. Protexa Br. at 27-29. Such

qualifications alone indicate that challenging such orders is not unusual.

35a

Appendix B

speculation on this question, we hold that the act of state doctrine is

inapplicable here. Hence, we have no need to reach the insurance

companies’ argument that the issuance of the order was an extra-

territorial exercise of jurisdiction, and thereby outside of the

doctrine’s scope.”

Furthermore, we believe that the district court was correct

when it pointed out that application of the act of state doctrine in

this case differs materially from the manner in which it typically is

interposed, viz., by defendants as a “shield.” Were we to apply the

doctrine to bar judicial inquiry into the validity of the removal

order, Protexa automatically would obtain coverage under the

insurance policy. Thus, the doctrine would be utilized as a “sword”

to prevent the insurance companies from challenging the coverage.

There is another factor which works against applying the act

of state doctrine. As we have explained above, Protexa chose to

bring this action in the United States. While it contends that it had

perfectly legitimate reasons for doing so, and we have no reason to

question its good faith, the fact is inescapable that it is seeking to

obtain an outcome determinative advantage from its forum

selection. We reach this conclusion for, as our analysis in the next

section demonstrates, the Port Captain’s order was invalid under

Mexican law. Yet Protexa seeks through its forum selection to

activate the act of state doctrine and preclude inquiry into the

validity of that order. If we apply the act of state doctrine, we will

encourage plaintiffs seeking to establish rights under invalid

20. To decide this question would seem to decide the very validity of the Port

Captain’s order since the Port Captain’ s authority and jurisdiction are relevant to the

order’s validity. As such we do not feel it necessary or wise to consider the

implications of a situation in which a court in order to determine whether the act of

state doctrine should be invoked, necessarily must perform the inquiry that the

doctrine would prevent.

36a

Appendix B

foreign orders and governmental actions to come to this country to

bring their cases.

We need not create a “fairness exception” to the doctrine, nor

focus solely on the insurance companies, however, to recognize

that in the circumstances of this case application of the doctrine

would disturb the legal regime underlying the insurance contract.

After all, the parties contracted for coverage only if the removal

was compulsory by law, meaning in response to a valid order.”!

Indeed, Protexa acknowledges that prior to the issuance of the

policy involved in this case it “had always purchased broad form

wreck removal coverage” which provided coverage “whenever

removal is deemed necessary by the insured.” Protexa brief at 5. It

further acknowledges that it sought that coverage in the policy

involved in this case but could not obtain it, as the insurance

companies offered the narrower “compulsory by law” coverage on

a “take or leave it” basis. Thus, in this case Protexa was well aware

of the limitations of its coverage, and if we permit it to invoke the

act of state doctrine to preclude an inquiry into the validity of the

order, we will be expanding its coverage beyond what it purchased

and paid for.

As we noted in Protexa Appeal I, it is significant that Protexa

and the insurance companies knew of the case law construing the

words “compulsory by law.” Therefore, they were presumed to

have intended these words to have their proper legal meaning and

effect. 954 F.2d at 135-36. Thus, the parties to the insurance policy

bargained for the possibility that a court might inquire into the

validity of a governmental removal order to determine whether a

policy covered a particular wreck removal.

21. Ofcourse, the removal also could be compulsory by law under either of the

other two factors we recognized in Protexa Appeal I, but we are not concerned with

them in this aspect of our opinion.

37a

Appendix B

V. VALIDITY OF THE ORDER

In Protexa Appeal I we held that the removal of the wreck was

“compulsory by law” if directed by a valid order of the Port

Captain. 954 F.2d at 141. Inasmuch as we have determined that the

act of state doctrine does not apply and the removal was not

compulsory by law under the objective balancing test, we must

decide whether the removal order was valid. In this section of our

opinion we cite to various provisions of Mexican and international

law which we have reprinted in English in the appendix to this

opinion.”

Under Fed.R.Civ.P. 44.1, the determination of foreign law in

the federal courts is a question of law to be resolved by reference to

any relevant information, including that provided by expert

witnesses. Merck & Co., 774 F.2d at 488. Consequently, we exercise

plenary review on this question, and are not confined to information

available to or considered by the district court.”

22. We have copies of Mexican documents translated into English in

somewhat different versions. We are satisfied, however, that the differences in the

translations are not material to the issues here. Insofar as they are available, we have

used the versions used by the district court in Protexa II.

23. See Mobile Marine Sales, Lt’d v. M/V Prodromas, 776 F.2d 85, 89 (3d

Cir.1985). The insurance companies urge us, however, to give at least some deference

to the district court’ s determination of foreign law, on the grounds that this case fits a

scenario in which scholarly commentary has noted that deference is justified:

A more restrictive review of foreign-law determinations

than is usually accorded domestic law seems justifiable

only when the oral testimony on alien law offered at trial

is in conflict and the circumstances justify according

(Cont'd)

38a

Appendix B

We will begin, therefore, by reviewing certain facts relevant to

determining the validity of the removal order. Prior to the

HUICHOL’s sinking in bad weather, it had been granted

permission by the Port Captain of the Port of Carmen to anchor in

an otherwise prohibited area within the Pemex oil exploratory

zone. Anchorage is prohibited in this area because oil platforms

and submerged oil pipelines are located in it. The HUICHOL sank

(Cont'd)

special weight to the district judge’s ability to evaluate

credibility and demeanor.

Arthur R. Miller, Federal Rule 44.1 and the “Fact” Approach to Determining

Foreign Law: Death Knell for a Die-Hard Doctrine, 65 Mich. L.Rev. 613, 689-90

(citing Remington Rand, Inc. v. Society Internationale, 188 F.2d 1011 (D.C.Cir.),

cert. denied, 342 U.S. 832, 72 S.Ct. 44, 96 L.Ed. 630 (1951)). Although the district

court was presented with conflicting expert testimony and did have the opportunity to

evaluate credibility and demeanor, we believe that the insurance companies have not

demonstrated sufficiently that deference is appropriate here. First, a footnote to the

quotation above indicates:

The value of demeanor evaluation in the case of expert

testimony on foreign law should not be overemphasized,

however. It seems unlikely that the physical appearance

and emotional state of a foreign-law expert will be

sufficiently distinctive to provide insights into his

competence that are not available from the record of his

testimony.

Id. at 690 n. 295. Second, the insurance companies point to no special circumstances

— other than the conflicting testimony — that would warrant a deferential approach,

and they have cited no precedent in support of their position. Because we are

convinced that the record is sufficient to enable us to evaluate the competing

testimony in an informed manner, we choose not to depart from our normal standard

of plenary review.

39a

eee PO eer

Appendix B

approximately 45 miles from the Port of Carmen’ — beyond the

12-mile limit which denotes Mexico’s territorial sea. Protexa II at

14-15. Its wreck lay in waters that under UNCLOS comprise the

Exclusive Economic Zone, an area of international waters, beyond

and adjacent to the territorial sea, in which the coastal state — here

Mexico — may exercise sovereign rights to explore, exploit,

conserve and manage the natural resources.”

A port captain has limited jurisdiction over the EEZ and may

perform police functions within this jurisdiction pertaining to

health, sanitation and customs. /d. at 15, 49. But the Port Captain

acknowledged in his testimony that there is a difference between

the geographic supervision and the subject matter jurisdiction of

his office. Although his jurisdiction exists by virtue of presidential

decree, his authority and control within the EEZ are defined by

law. Id. at 17. The Port Captain testified that he issued the removal

order for several reasons, the principal one being that the wreck

was located in a high safety zone from which, in his view, all

wrecks must be removed. Moreover, he believed removal was

required because the Mexican Attorney General had commenced

his investigation, and a visual and physical inspection of the ship

would facilitate this process. The Port Captain also believed that

the location of the wreck was in an area that affected the Port of

Carmen. Finally, due to the loss of life, there was tremendous

pressure to recover the bodies of the crew immediately, and the

Port Captain believed it important politically to commence

removal without delay. Jd. at 15-16.

24. The Port of Carmen supports offshore oil exploration and exploitation.

Protexa II at 39.

25. Wehave included relevant UNCLOS provisions in the appendix.

40a

Appendix B

Although the Port Captain testified as to his concern for safety

and his opinion that the HUICHOL constituted an obstacle to

maintenance activity in the oil field, he issued the order without

procuring a technical analysis regarding potential movement of the

wreck, its threat to oil pipelines and structures, and its potential

environmental impact. Jd. at 16. The district court also noted that

even though oil companies normally prepare and maintain charts

indicating the location of oil pipelines, there was no testimony that

the Port Captain had sought access to such charts. Jd. at 16 n. 6.

Furthermore, Pemex did not exert any pressure for wreck removal;

rather, the Port Captain attempted to pressure Pemex to enlist its

cooperation. Jd. at 16. Finally, the wreck lay more than 500 meters

from any oil platform, and Protexa never told the captain before he

issued the order that the wreck was rapidly sinking in the mud. /d.

at 16-17.

The district court considered the validity of the order under

Mexican statutory and constitutional law, for it believed that a due

process inquiry under the Mexican Constitution was relevant to its

final validity determination.* Ultimately, the district court held

26. Article 16 of the Mexican Constitution provides that “no one may be

bothered in his person, family, domicile, papers or possessions, except by means of

written order issued by a competent authority providing the basis and the reasons of

the legal cause for the proceedings.” Regarding the due process inquiry the district

court stated:

Overarching the validity of the Port Captain's order

is whether the Port Captain, as a representative of the

Mexican government, possesses the authority to order a

private citizen to raise and remove a wreck beyond

Mexico’s territorial sea without specific statutory

authority enabling him to do so. Because Protexa was a

(Cont'd)

4la

Appendix B

that the Port Captain’s order required Protexa to raise a wreck

outside Mexico’s territorial waters was invalid because: (1) it was

not authorized by Mexican statutory law; and (2) under Article 16

of the Mexican Constitution, the government cannot order a

private party to raise a wreck at is own expense absent statutory

authority. Finally, even though the removal order did not cite to

principles of the international law of the sea for authority, and the

district court believed that UNCLOS was not incorporated into

Mexican law prior to the issuance of the order, the court

nevertheless examined the relevant provisions of UNCLOS and

found them to provide an insufficient basis for the order.

In reaching its conclusions, the district court considered

testimony regarding the validity of the order under Mexican and

international law from witnesses produced by both sides, and we

(Cont'd)

private citizen when its vessel, the Huichol II (Huichol),

sank and the sinking occurred outside of Mexico's

territorial waters, this inquiry is especially appropriate.

Given that the Republic of Mexico models its

Constitution after that of the United States, the due

process inquiry is as relevant under the Mexican

Constitution as it would be under the United States

- Constitution.

The answer to the inquiry centers on the interplay

between Mexico’s exercise of its sovereign power in

relation to that of its citizens. If the sovereign’s exercise

of power is unbridled or authorized by law, then the Port

Captain's order is valid. If the Port Captain’s order is in

fact unauthorized by law or is proscribed in the

constitutional sense, then the order is invalid.

Protexa II at 5-6 (footnote omitted).

42a

Appendix B

consider such testimony integral to our present decision.”” We

therefore examine the statutes cited by the Port Captain in the order

as authority for requiring Protexa to raise the wreck: Article 86 of

the Law of Navigation and Maritime Commerce (Navigation

Law), and Articles 262 and 268 of the Law of General Means of

Communication (Means of Communication Law). Because the

expert witnesses differed over the meaning of these statutes, the

district court made reference to other portions of the statutes and

we will consider them as well.

A. Article 86 of the Navigation Law

The Port Captain first cited Article 86 of the Navigation Law,

enacted in 1963. The article is a wreck removal provision which

states in part:

If a ship runs aground or sinks in a port, in an

area considered as such in terms of the last

paragraph of Article 33, or in a general

waterway of communication, in a manner that

constitutes a navigational obstacle or that

affects navigation, it shall be removed within

the period set forth by the Navy Department.

Clearly there are two requirements for Article 86 to be applicable.

27. These witnesses were Miguel Angel Rebolledo, the Port Captain who

issued the order; Dr. Ignacio Melo, an expert in Mexican maritime law; Bernard

Oxman, an expert in international law and the United Nations Convention on the Law

of the Sea (“UNCLOS”); Ambassador Alberto Szekely, an expert in Mexican law of

the Sea and UNCLOS; Francisco Alva Rosas, an acting port captain; and David

Pockett, an expert in wreck removal and salvage operations. Depositions of Pockett

and Robert Umbdenstock, the on-site salvage matter who assisted Protexa with the

removal operation, also were read into the record.

ee ee ee ee eer

43a

Appendix B

First, the ship must sink in a specific location, namely, a port, an

area considered to be a port under Article 33 of the Navigation

Law, or in a “general waterway of communication.” Second, the

sunken ship must constitute an obstacle to navigation or affect

navigation.

Although Protexa’s expert on maritime law, Dr. Ignacio Melo,

and the insurance companies’ expert on maritime law, Ambassador

Alberto Szekely, agreed that the HUICHOL sank outside of

Mexico’s territorial waters and in the EEZ, they disagreed on

whether Article 86 granted the Port Captain the authority to order

wreck removal at the expense of a private citizen where the

HUICHOL sank. While they agreed that the HIUCHOL did not

sink in a port or in an area considered as such under Article 33, they

disagreed as to whether the waters of the EEZ were waters of

general means of communication.” The district court credited

Ambassador Szekely’s testimony that the EEZ was not a general

waterway of communication within the meaning of Article 86.

Protexa II at 43-45. The Ambassador pointed out that the phrase

“general waterway of communication” is defined in Article 1 of the

Means of Communication Law. Section I of that article refers to

Mexico’s territorial waters, and the three remaining sections refer

to several types of federal waters capable of sustaining

international commerce or commerce among the Mexican states.

However, the article does not mention the EEZ.

Protexa’s expert, Dr. Melo, testified that the EEZ could be

considered a “general waterway of communication” because

Article 9 of the Navigation Law, passed in 1963, derogated the

definition of “general waterway of communication” contained in

Article 1 of the Means of Communication Law, passed in 1940.

28. Article 33 refers to places not yet declared as ports or still under

construction and located within the coastline.

44a

Appendix B

Article 9 states in part: “The general means of communication by

water are the territorial seas and the other waters of federal

jurisdiction, when they can be used for navigation.” (emphasis

added). On Dr. Melo’s theory, use of the phrase “other waters of

federal jurisdiction” in Article 9 was a statutory anticipation of

Mexico’s creation of the EEZ.

Ambassador Szekely, however, contended that Article 9 of the

Navigation Law did not supersede Article 1 of the Means of

Communication Law. Rather, he stated, the phrase “other waters of

federal jurisdiction” in Article 9 of the N avigation Law was merely

a shorthand expression for the waters enumerated in sections I-IV

of Article 1 of the Means of Communication Law, as those

delineated waters were all waters of federal jurisdiction as

distinguished from the territorial waters of the first section. Thus,

the entire sentence in Article 9 references all of Article 1.

Moreover, Ambassador Szekely showed that Article 1 of the

Means of Communication Law could not have been abrogated by

Article 9 of the Navigation Law because Article 6 of the

Navigation Law expressly mandates reference to the Means of

Communication Law when questions arise regarding the

interpretation of general ways of communication by water. Finally,

the Ambassador also challenged Dr. Melo’s view that Article 9 of

the Navigation Law anticipated the concept of the EEZ in 1963, as

he showed that the physical contours of the EEZ were not formed

until 1971 and Mexico established its 200-mile zone in 1976 and

ratified UNCLOS in 1982. Thus, in Ambassador Szekely’s

opinion, the EEZ is not included in the definition of a “general

waterway of communication,” and under Article 1 of the Means of

Communication Law, the outer limit of the general way of

communication of water is the 12-mile limit of the territorial sea

which is the property of Mexico. Accordingly, Ambassador

Szekely reasoned that because the HUICHOL sank in the EEZ, an

Sede Meer d ah aE 9 dt Ia 08 5

Ae See Adhere

45a

Appendix B

area beyond the territorial sea and not the property of Mexico, it did

not sink in a “general waterway of communication.”

The district court found “Ambassador Szekely’s knowledge

of the statute’s language and his grasp of the legislative history . . .

compelling.” Protexa II at 45. Consistent with the Ambassador’s

testimony, the district court held that “Article 86 is territorially

based, limited to the property of Mexico, bounded by a twelve-

mile border and limited to a port or in an area considered as such,”

and “its application is restricted to an obstacle to navi gation or one

which affects it.” Jd. Inasmuch as the HUICHOL sank outside of

Mexico’s territorial waters and did not affect navigation, the

district court held that Article 86 of the Navigation Law could not

supply a legal basis for the Port Captain’s order.”

We agree with the district court’s conclusion. On appeal,

Protexa raises essentially the same arguments it advanced in the

district court, contending that the EEZ is included as a “general

waterway of communication,” even if the concept was not formed

fully in 1963, because “the plain wording of the statute

conclusively evidences the contemplation by the Mexican

legislature of some maritime zone of federal jurisdiction distinct

from territorial waters as early as 1963 — and it intended Article 86

to have effect in those waters wherever they may be.” Protexa Br. at

32. To bolster this claim, Protexa provides a history of the

development of the EEZ concept and its enactment into Mexican

law, and expressly points out that the Mexican Federal Law of the

Sea, which incorporates UNCLOS into Mexican law and became

29. Thecourt also noted that the testimony of the acting port captain, Francisco

Alva Rosas, was consistent with that of Ambassador Szekely. Rosas, the acting port

captain, should not be confused with Rebolledo, the Port Captain who issued the

order. See footnote 27, supra.

46a

Appendix B

effective in 1986, states in its preamble that it “has federal

jurisdiction,” and it governs the EEZ among other maritime

zones.”

Yet, it remains the case that in 1963, when Articles 86 and 9 of

the Navigation Law were enacted the EEZ concept was at best ina

period of gestation, and there were no contemplated waters of

federal jurisdiction other than those described in Article 1 of the

1940 Means of Communication Law, which provided the

definition of “general waterway of communication,” and to which

explicit reference is made by Article 6 of the Navigation Law. We

therefore reject the argument that although the Navigation Law

was enacted against the backdrop of the 1940 Means of

Communication Law, nevertheless the use of the phrase “other

waters of federal jurisdiction” in Article 9 was intended by the

~ Mexican Congress to provide for an ever-expanding definition of

the “general means of communication by water.”

For several reasons, the fact that the international community

later developed the EEZ concept and Mexico asserted jurisdiction

over it as provided under UNCLOS does not alter the reasonable

interpretation that under Mexican law the EEZ is not a “general

waterway of communication” under Article 86. First, as

30. Protexa Br. at 32-37. Article 2 of the Federal Law of the Sea states:

This Law has federal jurisdiction; it governs the

maritime zones that are part of the national territory and,

93 applicable, the maritime zones beyond said territory

over which the nation exercises sovereign rights,

jurisdiction and other rights.

25 Int’l Legal Materials 889 (1986); Protexa App. at 515.

47a

Appendix B

Ambassador Szekely testified, Article 6 of the Navigation Law

provides that the definition of “general ways of communication by

water ” is also consistent with the international treaties ratified by

Mexico, and Article 9 of the same law implicitly makes all general

ways of communication by water Mexican property. Therefore, to

extend the concept of “general ways of communication” to include

the EEZ would imply Mexican ownership over the EEZ, contrary

to international law and to Mexico’s treaty obligations, as Mexico

does not and could not own the EEZ.

Protexa responds to this interpretation by arguing that the

statutes cited in the removal order are not limited to the territory of

Mexico, and even if they were, the removal order still would be

valid under principles of international law. Protexa Br. at 46-47.

Yet, here we are addressing merely the question of whether the

EEZ can be included under the definition of “general ways of

communication” as argued by Dr. Melo and not the broader

quescion of whether the order is consistent with international law.

We believe that the use of the phrase “other waters of federal

jurisdiction” in Article 9, as passed in 1963, did not contemplate

the later development of the EEZ, and Protexa has provided no

grounds for believing that non-territorial “general ways of

communication” were so contemplated. Consequently, we credit

Ambassador Szekely’s testimony as to the territorial constraints of

Article 86 even if, for the purposes of this discussion only, Protexa

is correct that the removal order could be considered valid under

principles of international law.

Finally, although Protexa cites the language of the 1986

Federal Law of the Sea, it offers no satisfactory response to the fact

that this law was enacted after the HUICHOL sank and that the law

states not that the waters of the FEZ are “waters of federal

jurisdiction,” but rather that the “Law has federal jurisdiction.”

48a

Appendix B

Nor does Protexa offer any rationale upon which to discredit

Ambassador Szekely’s testimony that the 1986 law was not

intended to alter the definition of “general ways of

communication” contained in Article 1 of the Means of

Communication Law. AAMS App. at 123-24. As Ambassador

Szekley drafter the 1986 law (AAMS App. at 60-61), we choose

also to credit his testimony to this effect. Thus, like the district

court, we are of the opinion that Article 86 could not have provided

a legal basis for the Port Captain’s removal order.*'

B. Article 262 of the Means of Communication Law

Article 262 of the Means of Communication Law, enacted in

1941, is the second statutory provision cited in the removal order.

On its face, the article does not address wreck removal, but rather

authorizes investigations into maritime casualties and provides for

the appointment of two experts per investigation to accomplish this

objective. The district court concluded that the article is not port-

centered and conceivably could extend to a vessel located in the

EEZ, as the Port Captain may perform police functions within his

jurisdiction as they pertain to health, sanitation and customs.

Furthermore, he serves as auxiliary to the public prosecutor.

Protexa II at 49. However, although Article 262 permits the Port

Captain to commence an investigation and appoint investigators, it

does not address the question of whether the government may

order a private citizen to pay for removal of a wreck to assist with

this investigation, or whether the government must shoulder the

removal expense itself.

31. Protexa also argues that the district court did no consider the second

component of the test for the applicability of Article 86, namely the navigational

obstacle prong, other than in a “conc|usory statement” that this element of the test had

not been met. Protexa Br. at 37-39. We have no need to address this argument because

we have found that the first element of the test has not been met.

49a

Appendix B

Dr. Melo testified that Article 262 is sufficient legal basis in

itself for a removal order if removal is reasonably necessary to

complete the investigation. Protexa App. at 297, 306-10. However,

the district court again credited the testimony of Ambassador

Szekely, who stated that he 1986 Federal Law of the Sea governing

Mexico’s maritime areas is silent as to wreck removal and does not

authorize wreck removal jurisdiction in the EEZ. Protexa II at 49-

50. Consequently, the Ambassador concluded — and thus the

district court held — that without such legal authority the

government must pay for wreck removal incident to the

investigation, for it otherwise would violate Article 16 of the

Mexican Constitution, which requires a statutory basis a

government order against an individual. Jd. at 50-51.

We agree with the district court’s conclusion, as Protexa

merely contends that we should give Dr. Melo’s views greater

weight due to his substantial experience with the law here. Our

reading of Article 262 convinces us that the article simply cannot

be understood to have the broad implications Dr. Melo attributed to

it. Indeed, if it did, it would be difficult to limit the scope of the

section, for all sorts of things could be justified as being in aid of an

investigation. For example, Article 262 could justify the holding of

witnesses incommunicado or the seizure of private property

without legal process or redress. We cannot believe that the

Mexican Congress could have contemplated such procedures.

C. Article 263 of the Means of Communication Law

Article 263 of the Means of Communication Law, enacted in

1941, is the remaining statutory provision cited in the removal

order. Like Article 86 of the Navigation Law, Article 263 is a wreck

removal statute, but it is not dependent on the wreck being a hazard

to navigation. Rather, Article 263 compels the owner of a wreck to

50a

Appendix B

remove the vessel if its sinks within a port, or in the vicinity/

proximity of a port provided it affects the port. But inasmuch as

Protexa does not contend the HUICHOL sank within a port, we are

concerned only with whether it sank within the vicinity/proximity

of a port and affected the port.

Ambassador Szekely testified that the more restrictive word

“vicinity” is the more appropriate interpretation. Thus, the phrase

“affects the port” reflects a legislative determination that it is

necessary to protect the interests of navigation within the port and

navigation to and from the port. Protexa II at 46. The Ambassador

focused on Article 33 of the Administrative General Regulations

for the Police of Ports (the “Port Regulations”), promulgated in

1941, to support this view. Article 33 compels removal of a wreck

which sinks within a port or which interrupts navigation. However,

Dr. Melo interpreted the phrase “affects the port” in an economic

sense, testifying that the law must be interpreted in light of the

connection between the oil fields and the two ports servicing them.

Protexa App. at 291-95. Consequently, Protexa argues that Article

268 is not limited to protecting navigational interest, but rather that

is applies here because the sinking of HUICHOL in the oil fields

directly affected the commerce of the ports involved. Protexa Br. at

41.

The district court accepted Ambassador Szekely’s view,

adopting the navigational interest interpretation of the article and

the more restrictive translation of “vicinity.” Protexa I] at 47. Since

the HUICHOL did not sink within a port or in the vicinity of a port,

but rather 45 miles from the coast, its location could not interrupt

navigation to and from the port. Consequently, the district court

held that the Port Captain’s order was not authorized by Article

263. Protexa II at 47. Protexa rejects this interpretation and argues

that Article 33 should not be read to restrict the open-ended

)

Sla

Appendix B

language of Article 236, and that “common sense” dictates that the

legislature contemplated wrecks affecting the port in more ways

than merely obstructing navigation in and to the port. Protexa Br. at

40-41.

We adopt the holding of the district court, however, as

Protexa’s reading of the article to comprise wrecks which affect the

port in an economic sense surely is more strained and artificial than

Ambassador Szekely’s interpretation. In taking this position, we

view Article 53 of the Port Regulations as illuminating the kinds of

concerns behind Article 263. Moreover, we cannot believe that

when the Mexican Congress passed Article 263 in 1940, it

envisioned that it would be applied as Protexa would have us today,

viz, to a wreck located some 45 miles off the coast in international

waters. Indeed, we think that under Dr. Melo’s interpretation, an

order could be issued under Article 263 for removal of wreck

hundreds of miles from Mexico if such a wreck could affect a

Mexican port in an economic sense.

Thus, our analysis of the Mexican statutes cited in the Port

Captain’s order as authority for requiring Protexa to raise the

wreck leads us to conclude that the district court was correct in

holding the order invalid under Mexican law.*? As the order was not

32. Although Protexa argued in the district court and argues on appeal that the

removal order was valid under principles of international law without reference to the

domestic legislation cited by Mexico to justify its actions, we will not predicate a

decision regarding the validity of the order on the basis of legal authority not invoked

by the Port Captain to justify his order. In fact, on the basis of the record, italso appears

that when the Marine Mercante issued its own opinion affirming the Port Captain's

order, it too did not seek to justify the actions taken on the basis of separate principles

of international law. See Protexa Reply Br. at 10-1 1.

While the district court held on remand that even if UNCLOS had been cited it

(Cont'd)

52a

Appendix B

a valid order, Protexa’s removal of the HUICHOL was not

“compulsory by law” under the terms of the insurance contract

between it and the insurance companies. Consequently, Protexa is

not entitled to recover the expenses of raising the wreck from the

insurance companies.

VI. CONCLUSION

Based upon the aforesaid analysis, we will affirm the

judgment entered on May 14, 1993, in favor of the insurance

companies.

(Cont'd)

would not have justified the order, we decline to consider whether the order was

consistent with the provisions of the international law of the sea as enacted into

Mexican law. Given the quite fluid and complex circumstances surrounding the

sinking of the HUICHOL and the issuance of the removal order, we believe that as

concerns the validity of the order, and therefore the “compulsory by law” question, all

of the parties involved — Protexa and the insurance companies — should be entitled

to rely upon the legal authority cited in the order in making their determinations. The

Mexican authorities chose not to ground their actions on principles of international

law. Protexa, a private corporation and thus not an entity of the Mexican government,

should not now be heard to argue that their removal of the HUICHOL was

“compulsory by law” based upon authority not cited in the order nor considered at the

time. When a removal order has been issued and its authority cited, determining

whether legal compulsion exists should not require speculation as to other possible

unstated grounds. We also point out that the circumstance that actions are justified

under international law does not mean that as a matter of domestic law they are valid.

For example, we do not doubt that as a matter of international law officials of the

aliens not authorized by American law. Nevertheless, in a deportation case we look to

domestic law to determine whether a deportation order is lawful. While we recognize

that there may be some situations in which international law in itself may justify

governmental actions, perhaps the suppression of piracy, we surely are not

confronted with such a case here.

53a

Appendix B

Documentary Appendix

A. The Port Captain’s Order

SUBSECRETARIAT OF OPERATION

DIRECTORATE GENERAL OF MERCHANT MARINE.

OFFICE OF THE CAPTAIN OF THE PORT

SECTION OF MARINE SHIPS

OFFICIAL COMMUNICATIONS

CP-3312-23-3350

File.1

OFFICE OF THE CAPTAIN OF THE PORT

CALLE 20 No.29

P.O. Box 24100

RE: This is a communication concerning salvage of the vessel

‘HUICHOL’ of your Company

Cuidad del Carmen,

State of Campeche

December 17, 1985

TO:

CAPTAIN CARLOS H. MERINO GARCIA DEALBA

CHIEF OF MARINE OPERATIONS OF THE COMPANY

“CONDUX,” S.A. DEC.V.

AV. PERIFERICO 8 North

CITY.—

This Maritime Authority is pleased to resolve after analysis of the

procedures conducted by it in connection with the sinking of

National Motor Vessel (“Buque Motor de Posicionamiento

Dinamico Nacional”) named “HUICHOL” having the following

54a

Appendix B

characteristics: 499.83 gross tons, 151.57 net tonnage, registered

in this Port under number 2623 and owned by your Company (to)

refer the following procedures to Higher Authority (in order) to

request Expert Opinions from technical personal and reports as to

the causes that occasioned the sinking of said Vessel at the

following coordinates marked by radar: Latitude 19 degrees and

Longitude 91 degrees 58.5’ W., and therefore, based on the Sole

Article published in the Official (“Diario Oficial”) of the Federal

Government dated March 28 of this year and on Articles numbers

86 of the Law of Navigation and Maritime Commerce (“Ley de

Navigation y Comercio Maritimo”) and 262 and 263 of the Law of

General Means of Communication (“Ley de Vias Generales de

Comunicacion”), requests that such Company “CONDUX” S.A.

de C.V., deposit the sum of Pesos $10,000,000.00 (Ten Million

Pesos and 00/100, Mexican Currency) to guarantee the cleaning up

of the area and the salvaging of said Vessel, in addition to

guaranteeing any damage or loss that may arise in the course of the

salvage operations, hereby stating by way of clarification that such

sum may be furnished by a Bond or Deposit or Guaranty (“Billete

de Deposito”) furnished by an Insurance Company to the name of

the Treasury of the Federal Government and for availability to the

General Directorate of the Merchant Marine, a term of 25 days

from the date of notification of this resolution hereby being granted

as provided in the above cited Article 86.

Respectfully, ;

The Captain of the Port,

8.)

CAP.ALT. I.G. MIGUELA. REBOLEDO

GUIOT

(Seal of the United Mexican States)

(Seal of the Directorate General of Merchant Marine

Office of the Captain of the Port

55a

Appendix B

Cuidad del Carmen, State of Campeche)

Copies: To the DIRECTOR GENERAL OF MERCHANT

MARINE. —

For the information of Higher Authority.—

Respectfully.—

Jose Maria Ibarran No. 47.—

03900 Mexico. D.F.

B. The Law of Navigation and Maritime Commerce (1963)

Article 86

If a ship runs aground or sinks in a port, in an

area considered as such in terms of the last

paragraph of Article 33, or in a general

waterway of communication, in a manner that

constitutes a navigational obstacle or that

affects navigational obstacle or that affects

navigation, it shall be removed within the

period set forth by the Navy Department, by the

owner, the ship owner, or by anyone with a

legal interest in the ship; all of whom are

severally liable for the fulfillment of this

obligation. If the ship is not removed within the

established period, the Department will make a

cost evaluation which will serve as the basis to

make, the claim of the corresponding rescue

cost pursuant to the administrative execution

proceedings established in the Federal Tax

Code, and the Navy Department shall proceed

by itself, or with the intervention of a third

party, to carry out the necessary works to effect

the removal.

56a

Appendix B

Article 6

Questions which may arise over the

interpretation of ... what pertains to general

means of communication by water. . . shall be

decided by the provision of: a) This Law and

other laws on communications by water and

their regulations; as well as by the international

treaties duly ratified by Mexico; 6) The Law on

General Means of Communication. .. .

Article 9

For the purposes of this law:

I. The following are goods of maritime

domain and national property:

a) The territorial sea and the

inshore marine waters;

b) The continental shelf, the

submarine tunnels of the islands, islets

and reefs adjacent to the ports, lakes,

lagoons or estuaries communicating

with the sea, in the terms set forth in the

Political Constitution for the Mexican

United States and in the international

treaties duly ratified by Mexico;

c) The canals communicating the

marine spaces;

57a

Appendix B

d) The navigable rivers...

e) The seashores...

f) The portion of the sea and

inshore zone being a part of the port

premises;

g) The ports, bays, roads and inlets;

h) The docks, decks...

i) The resources and proceeds of

the goods listed in the foregoing

subparagraphs; and

j) The constructions and

installations made by private

companies or individuals in goods of

the maritime domain, when reversed”

in favor of the Nation.

II. The following goods shall be subject to the

regime of the goods of the maritime domain,

when they are part of the port premises or the

services to which this law refers are affected:

a) The navigable canals, when

related to inshore waters;

33. In a version of this article in a supplement to Protexa’s brief, the word

“reversed” appears in the text. We think that “reserved” may be the correct word.

58a

Appendix B

b) The navigable lakes and

lagoons;

c) The sea and inshore zone;

d) The banks and federal zones

adjacent to the river beds...

e) The pieces of land recovered

from the sea or from the estuaries.

Ill. The general means of communication by

water are the territorial seas and the other

waters of federal jurisdiction, when they can

be used for navigation. They include the works

and installations which constitute the maritime

or fluvial terminals and the areas necessary for

providing port and maritime services.

IV. The areas subject to the regime applicable

to the goods of maritime domain and devoted

to the establishment of the facilities and to the

rendering of the services to which this law

refers, shall be considered as port premises.

(Emphasis supplied).

Article 33

The locations of shorelines and of banks of

rivers, lakes and estuaries that have not been

declared ports, or that are under construction,

will be considered ports for the application of

59a

Appendix B

the provisions of this Law with respect to

vigilance, police and maritime accidents.

C. The Law of General Means of Communication (1940)

Article 1

I. The territorial waters, in the extent and

terms established by law and by international

law;

II. The floatable and navigable rivers as well

as the floatable and navigable tributaries,

provided they are in any of the following cases:

a) Whenever they terminate in the

sea, or in a lake, lagoon, or a stream of

the kind referred to in the following

section;

b) Whenever they serve totally or

partially as a geographic border for the

national territory, or between two or

more states;

c) Whenever they cross from one

state to another;

d) Whenever they cross the border

of another country.

60a

Appendix B

III. Floatable or navigable lakes, lagoons, and

streams, provided they comply with any of the

following requirements:

a) Whenever they communicate

permanently or at times with the sea;

b) Whenever they are connected

with constant water courses;

c) Whenever they serve totally or

partially as a geographic border for the

national territory, or between two or

more states;

d) Whenever they cross state lines;

d) Whenever they cross the border

of another country.

IV. Channels destined or to be destined for

navigation whenever they fall into any of the

cases described in Sections II and III hereof.

Article 262

In the event that of shipwreck, fire, collision,

running aground, or of any other accident

outside a port which affects the cargo, the crew

or any other persons aboard, the captain shall

proceed to conduct an investigation recording

the events in the navigation recording the

events in the navigation diary, or binnacle

6la

Appendix B

substituting it, with an obligation to inform the

maritime authorities upon arrival to port. If the

accident occurs in the port, notice will of

course be given to the maritime authorities,

which will proceed to conduct the

corresponding investigation informing the

Communications Department as soon as

possible. The latter, may if it is deemed

appropriate, appoint two experts who will give

an opinion on the cause of the accident and on

any parties presumed responsible. Once the

investigation is terminated the results thereof

shall be turned over the Federal District

Attorney within the term of five days.

Article 263

In the event of shipwreck within port, or in the

vicinity [vicinity] [proximity] thereof

provided it affects the port, the owner or any

interested company shall proceed to remove

the wreck within the period set forth by the

Harbormaster’s office; provided, however, that

the provisions of Article 47 hereof will apply in

the event that there is a refusal to carry out the

necessary works.

D. Administrative General Regulations for the Police of Ports

(1941)

Article 33

The Chief of the Police of the Port shall compel

62a

Appendix B

the patrons or owners of the vessel sinking

within a port (or in places which interrupt

navigation), to float them, to remove them or to

destroy them within a reasonable time limit

after which, if the order ha

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