The U.S. Supreme Court in Shute v. Carnival Cruise Lines, 499 U.S. 585 (1991) held the Shutes, who were injured on a Carnival Cruise ship in waters off Mexico, must file suit in Florida pursuant to the forum selection provision printed on the back of their ticket.   The Shutes filed suit in their home state of Washington.  The cruise ship departed from California.  Shute is still one of the most far reaching holdings enforcing adhesion-like forum selection provisions.  The Shutes also had a strong argument that they lacked notice of the forum selection/choice of law provisions.  

Welcome one and all to something that will undoubtedly change both history and the world as we know it:  the first installment of what will hopefully be a regular publication which we have decided to call From the “What the…?”File.  Basically, I’ll be picking up on out-of-the-mainstream stuff which any of us could have lived without knowing, but it will at least be stuff that is both interesting and has a bit of a twist.  At least in theory, anyway.  So, without further ado, here goes the collector’s item first issue.  I can confidentially say that that when you’re done, you too will be saying “What the…?”

European Copyright – The Write Stuff?

OK, not many of us care about Euro Copyright issues – I fully admit that.  But this is actually kind of interesting (even if it is Euro-centric).  It seems that way back in 2006, a Hollywood-funded, Netherlands-based anti-piracy group (known as ‘BREIN’, and please don’t ask me what it stands for) asked a musician to compose music for an anti-piracy video. The video in question was to be shown at a local film festival, and under these strict conditions the composer accepted the job.

However, the anti-piracy ad was recycled for various other purposes apparently without the composer’s permission. When the composer bought a Harry Potter DVD early 2007 (presumably a licensed one), he noticed that the campaign video with his music was on it. According to the composer And this was no isolated incident. He is now claiming that his work has been used on tens of millions of Dutch DVDs, without him receiving any compensation for it. The total claimed lost revenue is roughly a million Euros (which is about $1.3 mil US). 

But wait -- there’s more.  You’d think that the guy would have received some collection support from local rights societies.  You’d think.  But soon after he discovered the unauthorized distribution and after contacting a local music royalty collection agency not only did he not receive any royalties, one of their Board members offered to help ONLY if the composer assigned all his rights to the organization AND gave the guy a third of what was collected.   Ultimately the board member resigned and the anti-piracy group denied it was their fault in the first place.  But what’s more shocking – that anti-pirates are pirates themselves, or that there is corruption in the music industry? Hmmm – tough question.

The United States court system is fair to all who seek redress even if they are not citizens of the United States. People from across the world have been allowed to sue multi-national corporations who do business in the United States to affirm a foreign judgment that could not be collected in the country where the judgment was entered.

Because countries in South America and other areas of the world do not have the same stringent rules of evidence and judicial morality than those in the U.S. courts, suits in the U.S. to enforce foreign judgments and claims of injuries are rife with fraud.

For example, In July 2009, the Second Appellate Division of the Court of Appeal of California remanded the Tellez case to the Superior Court, with an order for the plaintiffs to show cause why that case should not also be dismissed. After several hearings, trial Judge Chaney dismissed the Tellez case in July 2010, noting that the case was rife with blatant fraud, witness tampering, and active manipulation. Judge Chaney also found that the Nicaraguan court system is, at best, fragile in its ability to present consistent rule of law and outcomes and that while many Nicaraguans live in relative poverty and with limited economic opportunity, the lawsuit was not the appropriate vehicle to rectify this situation.

If you are interested in a detailed analysis of the problem read Think Globally, Sue Locally: Trends and Out-of-Court Tactics in Transnational Tort Actions by Jonathan C. Drimmer and Sarah R. Lamoree available at http://www.boalt.org/bjil/documents/Drimmer_Macro2.pdf which covers in at least 72 pages the issues raised in detail.

The report by Mr. Drimmer and Ms. Lamoree is disturbing and makes clear that at least some of these cases are so rife with fraud that some lawyers have been disciplined for misrepresentations made to the court. Evidence of fraud and witness tampering is rampant and the only people who profit from these actions are the lawyers for the plaintiffs and the lawyers for the defendants.

© 2011, Barry Zalma. Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant. He recently published the e-books, “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Zalma on Diminution in Value Damages,” “Arson for Profit,” “Insurance Fraud,” “Zalma on California Claims Regulations,” “Murder and Insurance Fraud Don’t Mix” and others that are available at on his website.  Mr. Zalma can be contacted via his website http://www.zalma.com,or via email at zalma@zalma.com or you can access his free “Zalma on Insurance Fraud” newsletter. You can also access Mr. Zalma’s Martindale-Hubbell profile on martindale.com.

A deal signed last Wednesday, July 6, between the United States and Mexico will allow Mexican trucks and drivers to enter deep into the United States as originally envisioned under the North American Free Trade Agreement (NAFTA) 17 years ago.  In return, Mexico will lift tariffs imposed in 2009 on approximately $2.3 billion in U.S. goods.  Whereas Mexican trucks and drivers were, until recently, limited to carrying loads originating in Mexico to U.S. destinations within 25 miles of the border. Under the new agreement they will be permitted to carry loads to their final destinations in the U.S, wherever they may be dependent on safety inspections, driver reviews, electronic vehicle monitoring and other administrative restrictions.

How will this affect the American trucking carriers, U.S. insurers and those of us who represent them in litigation?

Some of our trucking clients feel that the effects will be minimal.  They believe that the multitude of administrative requirements will dissuade Mexican carriers from seizing the new opportunity, and that Department of Transportation (DOT) inspectors at the border will be particularly thorough in their screening efforts.  Other U.S. carriers feel that the effects may be slow in coming about, but that they will come about, with certainty.  Carriers of this mindset point out that Mexican businesses understand the opportunities available in the U.S. well.  They believe that their Mexican counterpoints will take pains to learn the regulations and adapt quickly.

Cost will be a factor, of course.  The costs of U.S. regulatory compliance will unquestionably be significant for Mexican carriers.  Many of our clients believe that Mexican wages will keep Mexican carriers competitive however, and doubt that costs will outweigh potential profits.  The biggest disincentive for Mexican carriers may very well prove to be the costs and burdens of American litigation. 

Most Mexican companies are unfamiliar with the American personal injury and wrongful death damages.  Under Mexican law, these sorts of damages are commonly controlled by statute, and are significantly limited.  Likewise, there are no punitive damages available in accident cases under Mexican jurisprudence.  Unless they have been previously directly involved in it, American litigation will be an eye-opening experience for most Mexican businesses.

Assuming that Mexican carriers will begin to venture further and further into the United States, and taking as granted that accidents involving Mexican drivers and trucks will take place as traffic increases, it will be the role of insurers and the trucking defense bar to acclimate Mexican companies to the nuances of American litigation.  This presents a responsibility, but also an opportunity.  Our firm, for instance, is considering participating in programs designed to inform Mexican carriers about the critical details of the DOT regulations and Texas accident and cargo litigation.  We see increased Mexican truck traffic is inevitable, and believe that the more smoothly the transition is made, the better for all.  As business continues to become ever-increasingly global, we believe that this new U.S./Mexico trucking deal will ultimately prevent new opportunities for both sides of the border, including carriers, insurers, and all other involved parties.

Owners of confidential, proprietary and trade secretinformation face a constant battle to maintain control of these valuableassets. A non-disclosure agreement (NDA) protects confidential information. Itis an agreement not to share particular information with others or use it forany purpose beyond the scope of the agreement.

These agreements are also contracts, so they generally require consideration.But in this instance they may be entered into at the time the information isshared. As more confidential information is shared, the agreement can beaugmented.

NDAs are not limited by the status of the parties and therefore can coverconsultants, independent contractors, or even other business entities such ascustomers, suppliers, and joint venturers. They can be self-propagating,requiring parties to get a similar or identical agreements from others beforesharing the protected information.

The enforcement of a NDA is limited by the type of information it purports toprotect. It is not possible to prevent disclosure of information that isalready in the public domain. On the other side of the spectrum, trade secretsmay be strictly protected. The information to be protected should be identifiedwith particularity in the contract and often includes customer lists, marketingor business plans and strategies, proprietary processes, technology, andbusiness methods.

An NDA must be reasonable in scope, and in at least one state perpetual NDAs isdisfavored. Global Link Logistics, Inc. v. Briles, No. A08A1871, (Ga. App. Feb.18, 2009). There, the Court of Appeals held that the non-disclosure provisionwas unenforceable because it purported to cover Briles’s “observations” and wastherefore overly broad. The provision also lacked a time limit, as required byGeorgia law.

Still, NDAs are powerful contracts. They may be used to stop an employee fromcompeting in other countries. For example, Pacesetter Inc. v. Nervicon Co. Ltd.et al., case number BC424443, in the Superior Court of the State of Californiafor the County of Los Angeles. Here, a unit of St. Jude Medical Inc. won apreliminary injunction against a former employee who allegedly stole tradesecrets in order to set up a rival medical device company in China. Apreliminary injunction will issue against the former employee and his newcompany, Nervicon Co. Ltd., pending service of process through the HagueConvention.

Valid NDAs also provide a defense against allegations of "public use"in patent infrigement cases. Motionless Keyboard v. Microsoft (Fed. Cir. 2007).Prior to the patent’s critical date, the invention of the patent was disclosedto several persons under a NDA that also expired prior to the critical date.These disclosures, according to the CAFC were not “public” as required by thefederal patent statute because they originally occurred under a NDA.

Additional resources:
•http://www.wnj.com/ten_tips_for_negotiating_nondisclosure_agreements/
•http://www.wsgr.com/PDFSearch/3153594.pdf


Prepared by Messrs. Peter Strand, esq. and Monty Hamilton, esq. These are theauthors' opinions and not the opinions of Shook, Hardy, and Bacon LLP.

The products liability litigation arena has recently seen an influx of overseas production processes litigation. Last year’s massive recalls on products such as children’s toys and pet food are just a two examples of the growing trend. Insurance defense practitioners are beginning to realize the impact of such litigation and that massive and expensive product liability claims based on overseas production are a new reality.

A recent decision, Ace American Inc. Co. v. RC2 Corp., 568 F. Supp. 2d 946 (N.D. Ill. 2008), focuses on insurance coverage in these circumstances, addresses issues that products practitioners need to know, and holds that an insurer has a duty to defend its insured in suits arising out of product recalls of products made outside of the United States if included in the coverage territory. In RC2 Corp., a federal district court judge for the Northern District of Illinois, applying Illinois law, held that an insurer has a duty to defend its insured, a toymaker, in suits arising out of the product recalls. The policyholder was sued by parents of children in the United States, alleging various theories of exposure and harm from toys contaminated with lead paint that were made in China, but sold in the United States. The insurer issued four successive liability insurance policies to the policyholder, the maker of the toys. Each of the policies stated that "the 'occurrence' must take place in the 'coverage territory.'" The coverage territory provision included "all of the world outside of the United States." After the policyholder sought coverage for these underlying actions, the insurer denied that it had a duty to defend or indemnify the insured because, inter alia, of the coverage territory of the policies.

In addressing the coverage territory issues, the court stated that what constituted the relevant "occurrence" for purposes of a coverage territory provision was a matter of first impression under Illinois law. The court rejected the insurer's argument that coverage was barred because the harm for which the underlying plaintiffs sought redress took place in the United States. The court reasoned that "[t]he language of the [policies] refers to Harm that is "caused by an 'occurrence'" and that "here the occurrence is separately identified as being the cause of the Harm" and that the "Harm is not itself part of the occurrence." The court further reasoned that "[t]he language is written in the positive" so that:

For there to be coverage, the occurrence must take place in the coverage territory. It is not required that the Harm take place in the coverage territory but only during the Policy Period. In this situation, the occurrence took place in the coverage territory of China. By contrast, if the provision had been written in the negative, the result could be different. If there had been an exclusion providing that there is no coverage for Harm that took place inside the United States, then the case would fall under such exclusion.

Though the court found against the insurer in this case, the court did direct litigators and insurers as to how to prevent such a costly occurrence from reoccurring. For insurers of overseas product manufacturers to prevent similar coverage disputes from being brought in the future, insurers should include exclusions in their policies providing that there is no coverage for harm, bodily injury, and/or damages that occur inside the United States. In this case, such simple language may have prevented costly litigation and saved millions of dollars.