Tuesday, April 16, 2013

Comity is Not Funny: Changing Technology, International Abstention, and Courts Filling the Gap in Contracts

    Parties to contracts, Judge Posner said, are embarking on a "collective adventure."  When technology changes faster than the minds of contract negotiators and drafters, problems arise that courts have to solve.  Throw in the international context and you can have a big mess that judges and juries have to solve.  The term "international abstention" was coined by the Eleventh Circuit in the 1990s in an opinion drafted by Judge R. Lanier Anderson, III, and I happened to have the great honor of clerking for this thoughtful jurist at the time the case came through the court.  I also had the great opportunity to study International Business Transactions at Yale Law School for Professor Harold Koh, who lightened up that excruciating topic by borrowing from comedian Steve Martin.   He instructed us that "comity is not funny" at the beginning of his lecture on the great case of Hilton v. Guyot, the forebear of the international abstention doctrine.  This doctrine was distilled and formalized in international abstention test in the Turner v. Degeto Film case decided by the Eleventh Circuit in 1994. 

     The problem in the Turner case was based on the fact that two broadcasters had the right to broadcast the same library of television content from satellites to owners of satellite dishes at the same time.  Degeto Film represented German state broadcasters that, under German law, had a legal duty to broadcast a library of old MGM content to the entire German speaking public, which does not conform to sovereign boundaries. These broadcasts had to be in the German language.  Meanwhile, Turner Broadcasting had later acquired the same library to broadcast anywhere in the world the same content.  The same party was on the other side of both contracts, United Artists.  Thus, UA had sold the same rights twice to two different companies and had carved out the nature of the territories assigned to those rights.  What the deals had not contemplated was the incredible rise of satellite television, because they had been drafted with an older method of broadcast in mind.  The German contract, therefore, contained a term allowing for reasonable "overspill"  of the broadcast into territory over the edges of the agreement.  In the satellite era, however, in order to reach the entire German public, the overspill apparently reached half of Europe, including countries and areas that included much of the territory that Turner thought it had bought.  Add in the multi-lingual culture of Europe and one had the real challenge of two different libraries of content repeated in different languages to the same population on different channels.  Oops!

    This led to a dispute with international overtones.  Turner, sn American company, the pride of Georgia, owner of the beloved baseball team the Braves, had to fight for customers with the German government over a massive content portfolio.  The Germans ran to a local German court and sued for the right to show their programs to German speaking people all over Europe. One week later Turner filed suit in the federal court of the Northern District of Georgia, seeking an injunction stopping the German broadcaster from broadcasting in Turner territory outside German, which, by the way, was the whole planet Earth.  Both sides hired their Luftwaffe of lawyers to go into the trenches and win for money and country.  Meanwhile UA likely counted its money and its executives played golf in Los Angeles, drank fancy wine and ate delicious cheese. 

    Back in Atlanta, Judge Shoob issued an injunction against the German government's broadcaster from broadcasting into the Turner territory.  I am not exactly sure how said injunction was to be enforced and the thought of rich ambassadors wearing boxing gloves comes to mind.  An emergency appeal was made to the Eleventh Circuit, briefs were filed, and the matter was expedited for oral argument.  Meanwhile, I clerked in Macon, Georgia wondering what in the heck I had gotten myself into with this whole legal business, and dreamed of marrying the scion of a very rich family to help me pay off my loans and escape from some very questionable borrowing decisions.  However, once this tasty case came along I realized we had something important to do that actually mattered, an international legal incident that had a lot of money and sovereign pride at stake.  Of course, the doings in the chambers of a federal judge are confidential and I will not say how much, if any, I was involved in the case.  However, I think it is fair to say that when the case came through I immediately remembered that indeed, "comity is not pretty." 

    At the time the most clear and renowned notion of comity was laid out in the old case of Hilton v. Guyot, a turn of the century case in which the US Supreme Court deferred to the decision of a foreign court's ruling in a case involving domestic and international citizens.  These cases were fairly unusual back then, given the limitations on travel and interaction, so it is worth noting how trailblazing the Court was to reach this decision.  What the case did not go into is the various types of abstention such as Burford, Colorado River, etc. where courts decline jurisdiction due to other pending proceedings.  In the case law prior to Turner, there were two lines of cases in the Seventh and Second Circuits that were not mutually exclusive and perhaps pointed to the same ultimate conclusion.  However, the key in Turner in my opinion is the clear reference to "international abstention" and the reference to a three-pronged test to guide the Eleventh Circuit in future cases.  This was essentially a case of first impression in that Circuit and it was important to provide a clear and bright test for courts to come on the issue.  The test weighs three factors: 1.  international comity; 2.  fairness to litigants, and 3.  judicial economy. 

      One of the great annoyances I have had is the sloppiness and confusion of commentators referring to this type of abstention as equal to or based on Colorado River abstention. This overlooks the clear  elevation of the Hilton case to the front and center of the three-pronged test laid out in Turner.  Colorado River abstention is where one state judgment is deferred to in another state in the US.  That is why the term "international abstention" was employed to clarify when the test applies and what is at stake in international business and the global economy.  Comity, the highlight of the doctrine, is not a state to state matter.  It is an international matter.  Turner represents a subtle but meaningful and important nod to the international nature of the cases.  It was based and is focused on the critical principles of international justice, and comity resides at the front of the test.  When courts in other countries do their job in good faith, regardless of the outcome for the home team, courts in America should have the common sense to keep their noses out of disputes that would waste their time, cost money, and add nothing but controversy to the good business of international commerce. 

     Of particular interest in the Turner case was the confusion and lack of solutions in the underlying contract for the overspill problem.  This left the parties and the courts in a bind.  What is there to do where the contract offers no help?  In a real sense, this left the court to create out of cloth a remedy.  What this also did is create the real possibility of sore losers. 

    The German court used a sovereign doctrine called "supplemental interpretation" such that the court had to decide what parties would do that was reasonable.  In its decision, it allowed the Germans to broadcast for a higher royalty and set further hearings on the reasonable value of the royalty.  This made Turner mad but also was perfectly sensible.  The lower court in Georgia tried to step in but had no real police power to enforce its ruling in Germany.  The broadcasts were in Europe so enjoining them was really impossible.  The result was messy. 

     In weighing this idea of the supplemental jurisdiction the Eleventh Circuit wisely looked for scholarly advice on the notion of courts making such an involved decision about what to do with the parties and looked comparatively at the notion of "supplemental interpretation," a concept not part of the lexicon on its face in Georgia law.  However, what the Court laid out was that the courts had a familiar and very similar "gap-filling" function to fill up the holes of poorly written contracts, or those that led to unintentional consequences.  One of intellectual supports for this decision rests on a footnote quoting the well known Judge Posner out of the Seventh Circuit, as great a writer on business law as one will find.  Gap filling is a "stab at approximating" what the parties would have done had they foreseen what would happen.  This is what good faith and fairness are all about.  Clearly, the German court had done this.  The Eleventh Circuit stayed the case because the royalty hearing had not yet taken place, but suffice it to say the case was resolved.

    In summary, the unforeseen advance of technology had led to hilarious and
unforeseen problems in the case.  The proper analysis and application of civilized courts using fairness and good faith led to a speedy resolution of the conflict.  When one party did not like this result, comity saved the day and put an end to the comedy of human limits.