NY Times Loewen story, 1/28/99

The NY Times article reproduced below highlights the "takings" implications of the current NAFTA language and possible language in the MAI, FTAA and other trade and investment agreements.

Nafta Invoked to Challenge Court Award
January 28, 1999, Thursday, Late Edition - Final
Copyright 1999 The New York Times

Some business executives have argued for years that large jury verdicts against big companies show that American courts are out of control.

Now a Canadian company that lost a huge case against a competitor in Mississippi is using a novel legal tool to seek at least $725 million from the United States Government.

Legal experts say the claim, the first against the United States under a little noted provision of the North American Free Trade Agreement, will encourage other companies to try the new tactic. And critics say the precedent could provide a potent back-door way for corporations to challenge the American legal system.

Loewen Group Inc., a Canadian funeral home company that lost a $500 million verdict in a 1995 Mississippi suit over fraudulent business practices, announced last fall that it had filed an international arbitration claim against the Government.

But Loewen's specific assertions and the large sum it was seeking were secret until this month. Among other things, Loewen, which is based in Burnaby, British Columbia, said the verdict against it was "infected by repeated appeals to the jury's anti-Canadian, racial and class biases."

Some legal experts said the Loewen claim advances a creative but plausible legal argument. Other experts said the case would test whether international trade agreements will be a new forum for business discontent with the American court system.

"It is an important case because it raises the question of the extent to which domestic civil judicial proceedings will be subject to international re-examination," said David W. Leebron, an expert on trade law and the dean at Columbia Law School.

The claim asserted that the Government should pay Loewen damages for what the company said was unfair treatment in the suit it lost to a Mississippi funeral home entrepreneur, Jeremiah O'Keefe 3d. Loewen settled the Mississippi case for $175 million in 1996.

In its claim, Loewen is seeking compensation not only for what it paid under the settlement but also for damage to its business.

The North American Free Trade Agreement promises fair treatment to foreign investors. Loewen said the court proceedings against it breached that promise, and argues that the Federal Government is responsible for the damage it says it suffered. But even some of those who were most involved in the debate over the trade agreement five years ago say they did not anticipate claims based on court verdicts.

Loewen's settlement with Mr. O'Keefe would stand no matter what happened in the arbitration panel designated under Nafta, the International Center for Settlement of Investment Disputes, which is a division of the World Bank. Under Nafta's rules, the arbitrators are to be selected from a roster of international trade and investment specialists. Each side is to select one arbitrator with a third to be chosen by agreement of the two sides. The panel is likely to be named soon, with proceedings to follow within a few months.

If the United States loses, public funds would be used to pay Loewen. The case does not involve the Canadian Government.

In its claim, Loewen attacked the Mississippi verdict, which involved a jury finding that Loewen used fraudulent practices to try to drive Mr. O'Keefe out of business. Loewen called the Mississippi court action an "uncompensated expropriation" of its property.

A Justice Department spokeswoman declined comment except to say the Government was fighting the claim, which she said lacked merit. But in the months since Loewen disclosed the existence of its case, critics have been warning about what they say are the dangers of it.

A victory by Loewen "would completely undermine the American civil justice system," said Joan Claybrook, president of Public Citizen, a watchdog group that has been critical of Nafta. Forcing American taxpayers to pay Loewen for its losses, she said, would erode the aim of American courts to punish and deter wrongdoing.

James A. Wilderotter, a lawyer for Loewen, declined to respond to critics in detail. But he said, "Nafta is part of the American legal system and the right to bring the action we have brought is clearly found within Nafta."

In its claim, Loewen included statements from political and legal authorities who, the company said, agreed that its treatment in the Mississippi courts should be considered a violation of the trade agreement.

Among others, Loewen quoted Mississippi's Governor, Kirk Fordice. "The O'Keefe verdict," Governor Fordice wrote, "represents to me everything that is wrong with the court system." Critics of Loewen say several of its experts, including Governor Fordice, have long records of criticizing the American court system.

But some trade-law experts said the case was a sign that the United States would come under increasing pressure in trade battles to moderate jury verdicts as the world economy grows more unified. "This is the globalized economy we've all been talking about," said John H. Jackson, an expert on trade law and a professor at Georgetown University Law Center in Washington.

Mr. Jackson and Mr. Leebron both noted that business leaders in other countries have for years complained that America's large jury verdicts make investment here unpredictable. They both said those assertions were much like the worries of American business executives about other countries' expropriations.

Nafta, like most agreements that use arbitration in business disputes, permits the handling of cases in confidential proceedings. Under those confidentiality rules, Loewen's case is to be heard in closed hearings by an arbitration panel unless Loewen and the Government agree to public proceedings.

Some critics of Loewen's filing say they are especially troubled by the fact that a case with large legal and financial ramifications could be decided in a closed proceeding.

"This is wrong and harmful to America because it substitutes for our judicial system a confidential arbitration panel that's not open to public scrutiny," said Mark S. Mandell, the president of the Association of Trial Lawyers of America.

Under the confidentiality rules, Loewen's claim documents were not publicly released until this month. Mr. Wilderotter acknowledged that Loewen released its claim documents only after it learned the Government was preparing to release them because the documents had been requested under the Freedom of Information Act.

The Mississippi court battle, which drew national attention, involved a bitter fight between Mr. O'Keefe and Loewen, a publicly traded funeral home chain with a reputation for hardball tactics.

After a hard-fought trial in Mississippi, Mr. O'Keefe's lawyers succeeded in arguments to jurors that Loewen tried to drive Mr. O'Keefe from business, sought to monopolize the regional funeral-home business and planned to raise prices to the bereaved.

Jurors said that they were angered by Loewen's tactics and awarded Mr. O'Keefe $100 million in compensatory and $400 million in punitive damages. In its Nafta claim, Loewen said Mr. O'Keefe's lawyers unfairly suggested to the jury. which included blacks, that Loewen was biased against blacks. The company said the plaintiff's lawyers also inflamed xenophobic passions by analogizing Loewen's move into Mississippi to the Japanese "sneak attack" on Pearl Harbor.

Loewen contended the verdict, the largest in Mississippi's history, was out of proportion to any losses Mr. O'Keefe might have suffered. And it said it was put at a disadvantage by Mississippi law governing appeals.

Mississippi, like many states, required a losing party to post a bond to appeal. Based on the $500 million verdict, the bond, too, would have been huge: $625 million. Loewen fought the bond requirement. But the Mississippi Supreme Court ruled that the $625 million bond was required.

Loewen said it could not post such a large bond. "Loewen," it said, "was forced to settle the case under conditions of extreme duress." Mr. O'Keefe's lawyer, Michael S. Allred of Jackson, Miss., said in an interview that the verdict against Loewen was fair and that Loewen should have pursued its appeal if it felt it had been wronged. In addition, he argued that Nafta's confidentiality provisions attack the integrity of the American court system.

Although the settlement Mr. O'Keefe received from Loewen would be beyond the reach of the Nafta arbitration panel, Mr. Allred said he and his client were offended that the jury's effort to punish Loewen would be nullified if the Government was forced to compensate Loewen in a proceeding that took place behind closed doors.

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