Opposition Brief — Grupo Protexa, S. A. v. All American Marine Slip

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No. 94-207 OCT 17 1994

OFFICE OF FHE CLERK

In The

Supreme Court of the United States

October Term, 1994

8

GRUPO PROTEXA, S.A., A COMPANY ORGANIZED

UNDER THE LAWS OF THE REPUBLIC OF MEXICO, AND

CONDUxX, 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 AMERICA CORPORATION, A NEW YORK

CORPORATION, AFIA, A DELAWARE CORPORATION,

AND CIGNA, A DELAWARE CORPORATION,

Respondents.

.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Third Circuit

+

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

°

Haroip K. Watson

Counsel of Record

Grecory F. Burcu

James E. Essic

Lippett, Sapp, Zrviey, Hit &

LaBoon, L.L.P.

Attorneys for Respondents

600 Travis

3500 Texas Commerce Tower

Houston, Texas 77002

(713) 226-1200

QUESTIONS PRESENTED

Respondents, All American Marine Slip and CIGNA

(“Respondents”), respectfully submit that Petitioners’

framing of the questions presented is somewhat mislead-

ing, in that they suggest that Respondents are seeking to

litigate issues already decided in Mexican proceedings or

that Respondents could have litigated in Mexico. Peti-

tioners’ first question is phrased in terms of whether “a

U. S. District Court... [can] review de novo a determina-

tion by a foreign government of its authority under its

law to issue a coercive removal order. ...” The use of the

term “de novo” would seem to imply that the American

court was “[t]rying a matter anew ... as if it had not been

heard before and as if no decision had been previously

rendered.” Black’s Law Dictionary 392 (5th ed. 1979). To

the extent that Petitioners seek to imply that the Mexican

courts or other competent Mexican authorities reviewed

the validity of the order, their suggestion has no basis in

the record.

In a similar vein, Petitioners’ second question sug-

gests that Respondents “were in a position to cause its

[the wreck removal order’s] validity to be litigated at the

time of its occurrence.” As will be explained in more

detail, Petitioners’ statement of the issues ignores the fact

that Respondents were reinsurers, not direct insurers, and

had no authority to interfere with Petitioners’ handling of

the wreck removal, and certainly did not have authority

to ask Petitioners to desist from taking actions which the

district court found were undertaken for commercial rea-

sons.

ii

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

_ Marine Office of America Corporation is a wholly

owned subsidiary of the Continental Corporation.

ili

TABLE OF CONTENTS

Page

I i

GN na dee sees scsvecesacecccevss ii

Corporate Party’s Affiliation....................... ii

ESE SO iii

a Pac u dies dade chsceseeseess iv

OI I Os cece cece ccceuese 1

a6 bie eu bas ens ¢ sie ssn ad eccnc: 1

ES ee 3

C. Removal Ordered By Mexican Government... 4

D. Underwriters’ Notice and Agreement........ 4

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

Reasons the Writ Should be Denied................ 6

EO OO re 7

ee 11

EES A 12

iv

TABLE OF CITATIONS

Page

Cases CITED:

Alfred Dunhill of London, Inc. v. Cuba, 425 U.S. 682

| ey rere Pere rar sep marr es ten mpm 7

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

RR sir aks cous taney Neakiaed eeeewKes 7, 8,9

Bell o. Durance, GOS tS. SA CUI as «osc cevecawscasaun 11

East Coast Tender Serv., Inc. v. Robert T. Winzinger,

ef Be es ee ae | 11

Environmental Tectonics v. W.S. Kirkpatrick, Inc., 847

Pe Re ee a FT 5 5 55a. n kA es eR ed ae 7

Heiner v. Donnan, 265 U.S. 312 (1952) .... cc cececees 11

Kalmich v. Bruno, 553 F.2d 549 (7th Cir. 1977)......... 5

Oetjen v. Central Leather Co., 246 U.S. 297 (1918)....7, 8

Ricaud v. American Metal Co., 246 U.S. 304 (1918)..... 7

Tot v. United States, 319 U.S. 463 (1943) ............. 11

Underhill v. Hernandez, 168 U.S. 250 (1897)............ 7

Vlandis v. Kline, 412 U.S. 441 (1973)................. 11

W.S. Kirkpatrick & Co. v. Environmental Tectonics

Cate, GS US. GER CPI. «wn cccc ite cswnscasce 7, 8,9

Court RULEs:

ee, Ba a i ON ik oo ohn cnkginnsick adeekeeees se

Unrrep States CONSTITUTION CITED:

WR BIN io on ckicdecckcéscdxecesiseee 11

en Mee a mr ee

Vv

TABLE OF CITATIONS - Continued

Page

OtTHER AUTHORITIES CITED:

Black’s Law Dictionary 392 (5th ed. 1979)............. i

James Herget & Jorge Camil, An Introduction to the

Mexican Legal System 27 (1978)...........0.seeeeees 6

Robert Leflar, American Conflicts Law §§ 1, 4 (1986) ..... 8

United Nations Convention on the Law of the Sea..... 3

APPENDIX

Appendix A — Transcript of Proceedings, February

27, 1989, granting Respondents’ Motion to Dis-

SRG Oe Te GE io 0 ok hen ewrdiveiaeeccacads la

STATEMENT OF THE CASE

Certain statements in Petitioners’ Statement of the

Case are misleading, either because facts are affirmatively

misstated, or by way of omission. Respondents will not

attempt to restate all the relevant facts, but only to

address the inaccuracies in Petitioners’ Statement of the

Case.

A. The Policy.

Contrary to the Petition, Respondents did not issue

an insurance policy to Petitioners, but rather reinsured

certain Mexican insurance companies which had in turn

insured Petitioners.! While this distinction may be subtle,

it emasculates Petitioners’ argument that Respondents

“had the contractual power and opportunity to insist that

Petitioners question the validity of the order in Mexican

courts.” Petition at 18.

The policy does contain a “claims control” clause,

which provides as follows:

Reinsurers [Respondents] hereon shall have

control of all claims negotiations and/or deci-

sions and/or settlements hereunder, and their

1 The policy defines the “Reassured” as Seguros Monterrey,

S.A., Seguros La Commercial, $.A., Aseguradora Del Pais, and

Seguros Mutua, S.A. Petitioners are defined as the “Original

Assured.” Appendix to Brief of Plaintiffs/Appellants Grupo

Protexa, S.A. et al; In the United States Court of Appeals for the

Third Circuit; No. 93-5332 at A-445 (hereinafter cited as “Third

Circuit Appendix”).

decisions shall be final and are binding upon the

Reassured [Seguros Monterrey, et all].

Third Circuit Appendix at A-450 (emphasis added).

While the claims control clause may have given

Respondents the right to insist that the Mexican insurers

insuring Petitioners pay or deny the claim submitted to

them by Petitioners, nothing in the clause gave Respon-

dents the right to direct Petitioners in their handling of the

removal operation; Respondents were not in privity of

contract? with Petitioners and could not legally have

insisted that Petitioners contest the wreck removal order

in a Mexican court. Moreover, Petitioners admit in their

petition that “there were intense social and political pres-

sures for the removal,” Petition at 4, and the district court

found after the first trial that Petitioners “responded out

of moral and commercial necessity,” not because of legal

compulsion. Appendix E to Petition at 188a. Respondents

could scarcely have insisted that Petitioners ignore Peti-

tioners’ own legitimate (albeit uninsured) interest in

removing the wreck to appease the Mexican state oil

company that was Petitioners’ only marine construction

client, the families of the deceased crewmen, and Mex-

ico’s most powerful union to which the deceased crew-

men had belonged. Appendix E to Petition at 125a.

Accordingly, Petitioners’ suggestion that Respondents

2 Presumably, Respondents could have raised this issue as a

complete defense to Petitioners, and required Petitioners to sue

their Mexican insurers. Respondents had no desire to protract

this litigation, however, and did not (and do not) interpose lack

of privity as a defense.

SS

had the right and the duty to insist that Petitioners con-

test the validity of the order in the Mexican courts has no

basis in the record.

B. The Wreck.

The Huichol II sank 45 miles offshore, well outside of

Mexican territorial waters. The wreck lay more than 500

meters from any structure. Trial Il, Appendix C to Peti-

tion at 84a and 117a. While the Huichol II indeed sank in

an area which is marked on nautical charts with the

notation “anchorage prohibited,” and while some wit-

nesses described this as an “area of extreme safety,” these

terms have no legal significance under Mexican taw. The

notation “anchorage prohibited” is inserted on charts by

the United States Defense Mapping Agency, but the Mexi-

can government has never designated the area in ques-

tion as an area where anchoring is prohibited or as an

“area of extreme safety” through any statute, regulation,

or other official promulgations. Trial II, Appendix C to

Petition at 115a; Appeal II, Appendix B to Petition at 33a

n.17.

Furthermore, it is highly questionable whether the

Mexican government could have designated the area in

question as a safety zone without violating international

law. Under the United Nations Convention on the Law of

the Sea, “[t]he coastal State may, where necessary, estab-

lish reasonable safety zones around .. . artificial islands,

installations and structures in which it may take appro-

priate measures to ensure the safety both of navigation

and of the artificial islands, installations and structures.”

Art. 60, { 4, Appendix B to Petition at 64a. However, the

breadth of the safety zones must be declared by the

coastal State, “and shall not exceed a distance of 500

metres around them.” Art. 60, { 5 (not quoted in Peti-

tion); Exhibit 5 to Brief of Defendants/Appellees All

American Marine Slip; In the United States Court of

Appeals for the Third Circuit; No. 93-5332.

Finally, while the Mexican wreck removal statutes in

question are geographically oriented, permitting the gov-

ernment to order the removal of wrecks which sink in

“general ways of communication by water”, ports, and

the vicinity or proximity of a port, there are no Mexican

statutes or regulations authorizing wreck removal orders

because a ship is located in an “anchorage prohibited

zone” or an “area of extreme safety.” Any suggestion that

the terms “anchorage prohibited zone” or “area of

extreme safety” have any legal significance is without

any basis in the record.

C. Removal Ordered By Mexican Government.

As noted above, the district court found after Trial I

that Petitioners removed the wreck not because of legal

compulsion, but because of the intense economic, social

and political pressures they faced as a result of the sink-

ing. Petitioners’ witnesses admitted at Trial I that this did

not constitute legal compulsion required by the policy.

Trial I, Appendix E to Petition at 188a.

D. Underwriters’ Notice and Agreement.

As noted above, Petitioners’ suggestion that Respon-

dents “had a contractual right under the terms of the

Policy at that time to ask Petitioners to make further

inquiry into its validity or make a challenge to it in the

Mexican courts” ignores the fact that Respondents were

reinsurers of several Mexican insurers, and not direct

insurers of Petitioners. It also is an attempt to revive an

argument that Respondents should somehow be estopped

from contesting the validity of the order, an argument

which was directly rejected by the district court on a

motion for summary judgment and never appealed.

Appendix A to Brief in Opposition.

E. Final Adjustment - “Invalidity” Claim.

In this portion of their petition, Petitioners quote

extensively from an “opinion” supposedly issued by the

office of the Marine Mercante after being requested “fol-

lowing established administrative procedures.” The doc-

ument was originally obtained by Petitioners in an

attempt to convince Respondents to pay the claim, and

was attached as an exhibit to Petitioners’ motion for

summary judgment without authenticatiom.* While this

document arguably could be considered as some proof of

Mexican law under Rule 44.1 of the Federal Rules of Civil

Procedure, see Kalmich v. Bruno, 553 F.2d 549, 555 n.4 (7th

Cir. 1977), there is nothing in the record to suggest that it

3 When Petitioners attempted to introduce this document at

Trial I, the district court sustained Respondents’ hearsay and

relevance objections. This ruling was never appealed, and Peti-

tioners made no attempt to introduce the document at Trial II.

When Petitioners cited it in the reply brief in Appeal II, Respon-

dents moved to strike the document. The Third Circuit over-

ruled this motion. Appendix B to Petition at 33a n.17.

was obtained pursuant to “established administrative

procedures,” or that non-lawyer Mexican administrative

officials are empowered to opine on the authority of their

own departments. On the other hand, Mexico does have a

specific judicial procedure, the amparo, for testing the

extent of administrative authority. Appeal II, Appendix B

to Petition at 34a n.19; see also James Herget & Jorge

Camil, An Introduction to the Mexican Legal System 27

(1978). This procedure is frequently used to test the val-

idity of wreck removal orders, Appendix B to Petition at

34a n.19, but was not utilized by Petitioners. Accordingly,

the so-called “opinion” scarcely constitutes an “unequiv-

ocal affirmation of the Port Captain’s authority from the

highest levels of the Mexican government... . ”

¢

REASONS THE WRIT SHOULD BE DENIED

The Third Circuit opinion does not conflict with

opinions of this Court or of other courts of appeal. The

act of state doctrine as currently applied by this Court

requires lower courts to balance the parties’ right to their

day in court with the Executive Branch’s need for flex-

ibility in dealing with foreign states. The Third Circuit

conducted the balancing test required by this Court’s

decisions, and correctly held that the doctrine was inap-

plicable because the case did not present implications for

the Executive Branch’s conduct of foreign relations.

The Third Circuit’s ruling that an invalid wreck

removal order, in and of itself, does not create legal

compulsion is consistent with the rulings of all the courts

of appeal which have ruled on this issue.

I. ACT OF STATE

The Third Circuit opinion is completely consistent

with 30 years of jurisprudence of this Court. In Banco

Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), this

Court rejected “an inflexible and all-encompassing” rule

to determine when the doctrine applies. Id. at 428. In W.S.

Kirkpatrick & Co. v. Environmental Tectonics Corp., 493 U.S.

400 (1990), this Court expressly stated that “even though

the validity of the act of a foreign sovereign within its

own territory is called into question, the policies underly-

ing the act of state doctrine may not justify its applica-

tion,” and that a balancing approach should be applied

“in order to avoid unquestioning judicial acceptance of

the acts of foreign sovereigns.” Id. at 409. As the Third

Circuit stated in the Environmental Tectonics case, “[flor

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 v. W.S. Kirkpatrick, Inc., 847

F.2d 1052, 1058 (3d Cir. 1988).

A majority of the members of this Court have

described the act of state doctrine as a choice-of-law rule.

Alfred Dunhill of London, Inc. v. Cuba, 425 U.S. 682, 705

n.18 (plurality op. per White, J.), 726-78 (Marshall, J.,

dissenting) (1976). While some of this Court’s early act of

state cases do use language that might support Peti-

tioners’ argument, Underhill v. Hernandez, 168 U.S. 250,

252 (1897); Ricaud v. American Metal Co., 246 U.S. 304, 309

(1918); Oetjen v. Central Leather Co., 246 U.S. 297, 303-304

(1918), these cases were decided in the heyday of Pro-

fessor Beale’s “vested rights” theory of conflicts of laws.

iA al

See Robert Leflar, American Conflicts Law §§ 1, 4 (1986).

Accordingly, it is perhaps not surprising that these cases

use language consistent with a rigid formulaic approach.

Modern, sophisticated choice of law theory is much more

flexible, however, and this Court’s approach to the act of

state doctrine has similarly evolved:

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 con-

siderations of international comity and expe-

dience,” Oetjen v. Central Leather Co., 246 U.S.

297, 303-304 (1918). We have more recently

described 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 val-

idity of foreign acts of state may hinder” the

conduct of foreign affairs, Banco Nacional de

Cuba v. Sabbatino, 376 U.S. 398, 423 (1964).

Environmental Tectonics, 493 U.S. at 404. Accordingly, this

Court has developed the sensitive balancing test to deter-

mine the applicability of the doctrine. The Third Circuit

utilized this approach, and found that this case does not

implicate the separation of powers concerns underlying

the doctrine since adjudication did not pose a potential

interference with the Executive Branch’s foreign policy

prerogative. Petitioners do not even argue that the Third

Circuit erred in concluding that there was no potential

impact on American diplomacy. This Court need not

grant certiorari simply to reaffirm its recent decisions

setting forth how the lower courts should determine the

applicability of the act of state doctrine.

Nor do Petitioners point to a single case from another

court of appeals decided since Sabbatino where the court

utilized the mechanical formula Petitioners advocate. In

the absence of some conflict with another circuit’s opin-

ion or an opinion of this Court, there is no need to grant

certiorari.

Petitioners’ second argument, that separation of

powers and sensitive foreign policy considerations are

only a consideration when the act of state is arguably

offensive to United States or international law, is contrary

to this Court’s jurisprudence and would create a bizarre

anomaly. In Sabbatino, this Court expressly stated that

“the less important the implications of an issue for our

foreign relations, the weaker the justification for exclu-

sivity in the political branches.” 376 U.S. at 428. Peti-

tioners would stand this reasoning on its head, and apply

the act of state doctrine mechanically to deprive parties

of their day in court in those cases where American

public policy or international law issues are not present

and the application of the doctrine serves no valid inter-

est.

The tenor of the opinions from this Court dealing

with the act of state doctrine leaves little doubt that

depriving parties of the right to full adjudication via the

act of state doctrine is at best a necessary evil. See Banco

Nacional de Cuba v. Sabbatino, 376 U.S. at 427 (“If the act of

state doctrine is a principle of decision . . . compelled by

neither international law nor the Constitution, its con-

tinuing vitality depends on its capacity to reflect the

proper distribution of functions between the judicial and

political branches of the Government on matters bearing

upon foreign affairs.”); W.S. Kirkpatrick v. Environmental

10

Tectonics, 493 U.S. at 409 (“The short of the matter is this:

Courts in the United States have the power, and ordi-

narily the obligation, to decide cases and controversies

properly presented to them.”) Petitioners would have this

Court extend the act of state doctrine to prevent Ameri-

can courts from deciding cases on the merits even where

the purpose of the doctrine is not served. There is no

need for this Court to grant certiorari to create such an

anomalous quirk in the act of state doctrine.

Petitioners’ final argument on the act of state doc-

trine is essentially that by determining whether removal

was in fact compulsory by law rather than applying the

act of state doctrine to create an irrebuttable presumption

of validity, the courts below somehow “abrogated Peti-

tioners’ vested contract rights in violation of the Due

Process Clause.” This theory requires little comment.

While the insurance professionals that negotiated the

manuscript policy* for Petitioners and Respondents were

undoubtedly aware of the marine insurance cases con-

struing the term “compulsory by law,” Appeal I, Appen-

dix D to Petition at 130a, it is extraordinarily unlikely that

non-lawyers would be familiar with a legal concept as

esoteric as the act of state doctrine. Accordingly, to sug-

gest that the parties contracted with reference to the

possibility that there would be cases where legal compul-

sion would be presumed and Petitioners would have only

to institute suit in the United States to establish a critical

element of coverage under the policy strains credulity.

4 The policy is composed of manuscript clauses drafted by

Petitioners’ representative, EII, on EII stationery, and certain

form clauses. Third Circuit Appendix at A-445 et seq.

11

Accordingly, there are no constitutional implications in

the lower courts requiring Petitioners to prove legal com-

pulsion.

On the other hand, there would be considerable con-

stitutional implications raised by application of an irre-

buttable presumption of validity via the act of state

doctrine; to deny Respondents the opportunity to defend

themselves by showing that removal was not “com-

pulsory by law” within the meaning of their contract

would scarcely comport with the requirements of the

Fifth Amendment. See Vlandis v. Kline, 412 U.S. 441 (1973);

Bell v. Burson, 402 U.S. 535 (1971); Tot v. United States, 319

U.S. 463 (1943); Heiner v. Donnan, 285 U.S. 312 (1932). In

view of the absence of any issues meriting a grant of

Petitioners’ petition for certiorari, however, this Court

need not face the constitutional implications of the act of

state doctrine at this time.

II. COMPULSORY BY LAW

No court that has ever considered the meaning of the

term “compulsory by law” typically used in marine pro-

tection and indemnity policies as a precondition to lia-

bility for wreck removal has even suggested that an

invalid governmental order, in and of itself, could consti-

tute legal compulsion. In fact, of all the cases involving

this issue, in only one other case, East Coast Tender Service,

Inc. v. Robert T. Winzinger, Inc., 759 F.2d 280 (3d Cir. 1985),

had a wreck removal order even been issued. The court

there did not even consider the validity of the order or

whether that would have an effect on whether removal

was “compulsory by law.” Moreover, that case was from

12

the same circuit as this case, and thus presents no possi-

bility of an intercircuit conflict. In the absence of some

conflict of authority between the circuits, this Court’s

scarce resources should not be consumed on an arcane

question of marine insurance law.

¢

CONCLUSION

For the foregoing reasons, Respondents respectfully

request that this Court deny the petition for a writ of

certiorari to the United States Court of Appeals for the

Third Circuit.

Respectfully submitted,

Harotp K. Watson

Counsel of Record

Grecory F. BurcH

James E. Essic

LIDDELL, Sapp, ZIvLEy, Hit &

LaBoon, L.L.P.

Attorneys for Respondents

600 Travis

3500 Texas Commerce Tower

Houston, Texas 77002

(713) 226-1200

la

APPENDIX

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

GRUPO PROTEXA, S.A., a : Civil Action

company organized under the No. 86-4212

laws of the Republic of Mexico,

and CONDUx, S.A. de C.V., a

company organized under the : TRANSCRIPT OF

law of the Republic of Mexico, : PROCEEDINGS

Plaintiffs, °

V.

ALL AMERICAN MARINE SLIP,

a New York business

organization, and AFIA, a

Delaware corporation,

Defendants.

x

Newark, New Jersey

February 27, 1989

BEFORE:

THE HON. ALFRED M. WOLIN, U.S.D.J.

APPEARANCES:

RIKER, DANZIG, SCHERER & HYLAND,

ESOS.,

BY: KENNETH M. VAN DEVENTER, ESQ.,

and ANDREW M. LANKLER, ESQ.,

Attorneys for Plaintiff.

SAIBER, SCHLESINGER, SATZ & GOLDSTEIN,

ESQS.,

BY: DAVID J. D’ALOIA, ESQ.,

2a

And

LIDELL, SAPP, ZIVLEY, HILL & LaBOON,

ESQS.,

BY: HAROLD K. WATSON, ESQ. (Texas Bar)

Attorneys for Defendants.

Reported by:

CHARLES P. McGUIRE, C.S.R.

Official Court Reporter

* + +

[p. 36] MR. WATSON: Your Honor, in a sense, we're

going to have to address the issue of New Jersey law on

the estoppel issues, because they switch gears and they

say Texas law on the bad faith issues and New Jersey law

on the estoppel issues.

THE COURT: I’ve been through this, reading it. I

understand. I’m prepared to decide the estoppel and the

tortious interference as well today.

MR. WATSON: Let me, if I may, address the estoppel

issues, and again, this will bear on the bad faith questions

that have been raised here.

+ + +

[p. 41] THE COURT: Thank you.

I’m satisfied that in terms of the choice of law I’m

going to apply on the estoppel question, it’s going to be

Federal maritime law, and I’m satisfied that I will side

with the Defendants on this issue, that there will be no

estoppel applied to the reinsurance contract, that the

contract is what it says it is, cannot be expanded, and

therefore, I’ll grant the application.

+ * *