Using State Department Country Reports To Prevent Recognition of Negative Foreign Decisions: The Bridgeway and Koplik Cases
Kelley Drye Client Advisory
May 2, 2009
A recent decision by the Bankruptcy Court for the Southern District of New York, as affirmed by the Southern District of New York, refused to extend international comity to certain decisions of the Indonesian courts based on United States State Department Country Reports concerning corruption in that country. The Court relied on the Second Circuit's decision in Bridgeway Corp. v. Citibank in holding that the State Department Country Reports are admissible as exceptions to the hearsay rule under Federal Rule of Evidence 803(8)(C). These annual reports provide facts and data compiled by the State Department pursuant to law on a wide variety of issues including judicial corruption and human rights violations, and are available from the State Department's website, www.state.gov. Litigants should be aware of these decisions and the availability of State Department Country Reports when faced with negative foreign decisions or judgments from countries with unstable regimes or corrupt judiciaries, as they can clear the way for a de novo decision on the merits in a United States court.

Background

The Litigation Trustee for Perry H. Koplik & Sons, Inc. ("Koplik"), a company currently in Chapter 11 bankruptcy proceedings in the United States Bankruptcy Court for the Southern District of New York before Judge Gerber (represented by Kelley Drye & Warren LLP), brought an adversary complaint against Bank Mandiri, an Indonesian bank, alleging claims based on the bank's dishonor of a letter of credit governing the sale of paper-milling equipment in Indonesia. There had been litigation in Indonesia, which went up to the Supreme Court of Indonesia. That court first ruled for Koplik but then reversed itself based on a purely technical defect in Koplik's power of attorney. Additionally, in a related suit by the transaction counterparty, the Indonesian District Court allegedly issued the equivalent of an injunction prohibiting Bank Mandiri from paying on the letter of credit until the judgment in the case was final. See In re Perry H. Koplik & Sons, Inc., 357 B.R. 231, 234-37 (S.D.N.Y. Bankr. 2006).

Bank Mandiri brought a motion to dismiss the Litigation Trustee's Amended Complaint, arguing that under the doctrines of international comity and res judicata, the Bankruptcy Court should defer to the Indonesian decisions, and dismiss the complaint in New York. The Bankruptcy Court held that res judicata could not apply, because the Indonesian Supreme Court decision was not on the merits and the Indonesian District Court decision was provisional. 357 B.R. at 237-39.

Then, the Koplik Bankruptcy Court rejected Bank Mandiri's international comity arguments, first citing the cardinal principle that United States courts will only grant comity to foreign decisions that are do not violate American laws and public policy. 357 B.R. at 239. In his opposition to Bank Mandiri's motion to dismiss, the Litigation Trustee submitted newspaper articles and the 2003 State Department Country Report for Indonesia. These materials highlighted the endemic corruption in Indonesia's judicial system. In particular, the State Department Country Report detailed "widespread corruption throughout the legal system, aggravated by low salaries paid to Indonesian judges and the pressure those judges face from other governmental authorities," called the Indonesian judiciary "the world's most corrupt," and estimated the "price of victory" from between $8,300 to $600,000. See 357 B.R. at 241, n. 15.

While the Koplik Bankruptcy Court found that the newspaper articles were hearsay, it held that the State Department Country Report was admissible as an exception to the hearsay rule, under Federal Rule of Evidence 803(8) concerning public records and reports, relying on the Second Circuit's decision in Bridgeway Corp. v. Citibank, 201 F.3d 134 (2d Cir. 2000). 357 B.R. at 239-42. In Bridgeway, the Second Circuit affirmed the District Court's sua sponte grant of summary judgment to a judgment debtor, Citibank, seeking to avoid a judgment rendered by the courts of Liberia. After first finding that Citibank's prior participation in Liberian litigation was of no matter, because "[d]efending a suit where one has been haled into court, and suing where jurisdiction and venue readily exist do not constitute assertions that the relevant courts are fair and impartial," the Second Circuit evaluated the District Court's reliance on the State Department Country Reports on Liberia submitted by Citibank. 201 F.3d at 141, 143-44. The State Department Country Reports on Liberia stated that given Liberia's civil war, the judicial system was not functioning in many areas, and was "hampered by inefficiency and corruption." Bridgeway Corp. v. Citibank, 45 F. Supp.2d 276, 280 (S.D.N.Y. 1999). Analyzing Federal Rule of Evidence 803(8)(C), the Second Circuit affirmed the District Court's reliance on the State Department Country Reports and its finding in favor of Citibank. 201 F.3d at 143-44.

The Koplik Bankruptcy Court held that, based on the State Department Country Report and the Bridgeway analysis, the Indonesian judicial system had "systematic corruption," and as such, it could not grant comity to the Indonesian decisions as they were not rendered by an impartial forum. In addition, the court found suspicious that the Indonesian Supreme Court re-reviewed and reversed its own decision. Judge Marrero of the United States District Court for the Southern District of New York denied leave to appeal, holding that, among other things, there was no controlling question of law and the Bankruptcy Court acted within its discretion. See In re Perry H. Koplik & Sons, Inc., 377 B.R. 69 (S.D.N.Y. 2007).

State Department Reports and International Comity

As demonstrated by the Bridgeway and Koplik cases, State Department Country Reports concerning foreign countries can be used to challenge the international comity of negative foreign decisions, if the foreign country has judicial corruption or other problems that impact its ability to render an impartial decision or that offend American laws and public policy. As the Koplik case shows, the specter of bribery arises if the judicial system shows evidence of corruption, in particular when the specific rulings at issue are rendered under suspicious circumstances (e.g., the Indonesian Supreme Court's reversal of its own decision on a technicality). In other cases, such as the Bridgeway scenario, the foreign country may be embroiled in a civil war or other circumstance that creates a state of disarray in the legal system.

State Department Country Reports were admissible in Bridgeway and Koplik because both courts found that they satisfied Federal Rule of Evidence 803(8)(C), which provides an exception to the hearsay rule:

Records, reports, statements, or data compilations, in any form, of public offices or agencies, setting forth (A) the activities of the office or agency, or (B) matters observed pursuant to duty imposed by law as to which matters there was a duty to report, excluding, however, in criminal cases matters observed by police officers and other law enforcement personnel, or (C) in civil actions and proceedings and against the Government in criminal cases, factual findings resulting from an investigation made pursuant to authority granted by law, unless the sources of information or other circumstances indicate lack of trustworthiness.

The burden is on the party opposing admission to prove a lack of trustworthiness. As the Second Circuit held in Bridgeway, State Department Country Reports contain factual findings, and are gathered pursuant to federal law, which requires the State Department to submit the reports annually to Congress. 201 F.3d at 143. The Second Circuit also found the reports trustworthy, because they were prepared with area specialists with no motive to misrepresent facts. In a footnote, Bridgeway noted that some situations – for example, a report concerning an avowed enemy of the United States – might indicate "motivational problems." Id. at 143-44 & n.14.

In both Bridgeway and Koplik, the parties opposing the State Department Country Reports sought to present evidence contradicting them, which both courts rejected. For example, in Bridgeway, the court found conclusory affidavits from Liberian attorneys to be insufficient where they did not specifically concern the judicial system. 202 F.3d 142. In Koplik, Bank Mandiri submitted a conclusory attorney affidavit and a White House press release with vague comments concerning cooperation between the United States and Indonesia on unspecified "justice-sector" issues. 357 B.R. 242-43 & n.24.

The use of State Department Country Reports showing corruption or political influence in a foreign country may be of particular use where the opposing party is a state-owned entity. In Koplik, the Bankruptcy Court found the State Department Country Report to be "particularly applicable" to the Koplik case, because Bank Mandiri (a state-owned bank) was an instrumentality of the Indonesian government. As such, Indonesian court proceedings against Bank Mandiri would be especially susceptible to influence from other arms of the government. 357 B.R. 242.

Moreover, in terms of collateral and judicial estoppel, it is of no matter that the American plaintiff initiated an action in the foreign forum it now complains is impartial. Bridgeway rejected this argument, stating that even where Citibank appeared as Plaintiff in some of the dozen cases in Liberia without raising an objection to the fairness of the Liberian system, suing where jurisdiction and venue exist are not assertions that the forum is fair. 201 F.3d at 141. The Koplik Bankruptcy Court, affirmed by the District Court, adopted the same analysis. 357 B.R. at 242.

It bears noting that State Department Country Reports can also be used for the converse purpose, to set forth facts into evidence that warrant deference to a foreign forum. A year after Bridgeway, the Southern District of New York considered a State Department Country Report in finding that Ecuador was an available alternate forum under a forum non conveniens inquiry, holding that while the State Department Country Reports describe Ecuador's legal and judicial systems as "politicized, inefficient and sometimes corrupt," the cases cited in the reports only involved police and political protestors. The court found that Ecuador was an appropriate alternate forum for a suit against an oil company concerning environmental damage, which was different from the problematic cases described by the State Department Country Report. See Aguinda v. Texaco, Inc., 142 F.Supp.2d 534, 545 (S.D.N.Y. 2001). See also In re Compania De Alimentos Fargo, 376 B.R. 427, 434-37 (S.D.N.Y. 2007) (court cited both Bridgeway and Koplik for the proposition that State Department Country Reports are admissible, relied on Country Report as illustrative of integrity of the Argentinean system, and exercised discretion to abstain from involuntary bankruptcy proceeding in U.S., given the restructuring proceeding pending in Argentina).

In analyzing whether reliance on a State Department Country Report may be helpful, it is important to distinguish between differences between U.S. and foreign judicial systems and the presence of ancillary, through disturbing, governmental or social issues in foreign countries on the one hand, and endemic judicial problems, such as corruption, that render foreign courts unable to render an impartial judgment.