fter the highest court in Massachusetts ruled against
a Canadian real estate company and after the United State Supreme Court
declined to hear its appeal, the company's day in court was over.
Or so thought Chief Justice Margaret H. Marshall of the Massachusetts
court, until she learned of yet another layer of judicial review, by an
international tribunal.
"I was at a dinner party," Chief Justice Marshall said in a recent
telephone interview. "To say I was surprised to hear that a judgment of
this court was being subjected to further review would be an
understatement."
Tribunals like the one that ruled on the Massachusetts case were
created by the North American Free Trade Agreement, and they have heard
two challenges to American court judgments. In the other, the tribunal
declared a Mississippi court's judgment at odds with international law,
leaving the United States government potentially liable for hundreds of
millions of dollars.
Any Canadian or Mexican business that contends it has been treated
unjustly by the American judicial system can file a similar claim.
American businesses with similar complaints about Canadian or Mexican
court judgments can do the same. Under the Nafta agreement the government
whose court system is challenged is responsible for awards by the
tribunals.
"This is the biggest threat to United States judicial independence that
no one has heard of and even fewer people understand," said John D.
Echeverria, a law professor at Georgetown University.
In the Massachusetts case, brought by Mondev International, the Nafta
tribunal decided in 2002 that the Massachusetts courts had not violated
international law.
But in a separate pending case, brought by a Canadian company
challenging the largest jury verdict in Mississippi history, a different
Nafta tribunal offered a harsh assessment of Mississippi justice.
"The whole trial and its resultant verdict," the three-judge tribunal
ruled last summer, "were clearly improper and discreditable and cannot be
squared with minimum standards of international law and equitable
treatment."
The Mississippi case arose from an exchange of companies between a
Canadian concern, the Loewen Group, and companies owned by a Mississippi
family, the O'Keefes. The O'Keefe family, contending that the Loewen Group
did not live up to its obligations, sued for breach of contract and fraud.
Although the tribunal found that the businesses were worth no more than $8
million, a jury in Jackson, Miss., awarded the family $500 million in
1995.
Loewen settled the case the next year, for $175 million. But, arguing
that the trial had been unfair and that it had been coerced into settling
by a requirement that the company post an appeal bond of $625 million,
Loewen and one of its owners filed their claim in the Nafta tribunal in
1998. They asked for $725 million from the United States.
The availability of this additional layer of review, above even the
United States Supreme Court, is a significant development, legal scholars
said.
"It's basically been under the radar screen," Peter Spiro, a law
professor at Hofstra University, said. "But it points to a fundamental
reorientation of our constitutional system. You have an international
tribunal essentially reviewing American court judgments."
The part of Nafta that created the
tribunals, known as Chapter 11, received no consideration when it was
passed in 1993.
"When we debated Nafta," Senator John Kerry of Massachusetts, the
presumptive Democratic presidential nominee, said in 2002, "not a single
word was uttered in discussing Chapter 11. Why? Because we didn't know how
this provision would play out. No one really knew just how high the stakes
would get."
Senator Kerry spoke before the tribunal rulings concerning the
Massachusetts and Mississippi judgments. He offered his comments in
connection with legislation he had offered to limit the jurisdiction of
the tribunals. His amendment was rejected by the Senate.
Abner Mikva, a former chief judge of the federal appeals court in
Washington and a former congressman, is one of the three Nafta judges
considering the Mississippi case. He declined to discuss it but did offer
his perspective on Chapter 11.
"If Congress had known that there was anything like this in Nafta," he
said, "they would never have voted for it."
The other judges considering the case are Anthony Mason, a former chief
justice of the Australian High Court, and Michael Mustill, a former
British law lord. They were selected by the parties, and their judgment
cannot be appealed.
Though the tribunal called the Mississippi trial "a disgrace" and "the
antithesis of due process," it denied the claim of the company itself last
summer. The tribunal said the Loewen Group was ineligible to bring the
claim because it had become an American company in the meantime. The trade
agreement allows claims only by foreign investors.
But a separate claim by Raymond L. Loewen, a former owner of the
company who was and is Canadian, remains pending. He did not specify the
damages he is seeking. A decision is expected soon.
Even Mr. Loewen's American lawyer, John H. Lewis Jr., expressed some
discomfort with the power of the Nafta tribunals.
"I agree with the principle that that people should not short-circuit
or second-guess the American legal system," he said. "But this case was so
extreme that hopefully it will never happen again."
About a score of cases have been filed against the three countries that
are parties to the trade agreement, mostly in connection with
environmental and other regulations. The United States has yet to lose
one, but Canada and Mexico have had to pay damages to American
investors.
In the Mississippi case, the tribunal had faulted Judge James E. Graves
Jr. of Circuit Court in Jackson for allowing lawyers for a Mississippi
businessman to make "prejudicial and extravagant" statements to the jury
about the Canadian defendants' wealth and nationality.
"Judge Graves failed in his duty to take control of the trial by
permitting the jury to be exposed to persistent and flagrant appeals to
prejudice," the panel wrote. "The conduct of the trial by the trial judge
was so flawed that it constituted a miscarriage of justice."
Justice Graves, now a justice of the Mississippi Supreme Court,
declined to comment.
Similar tribunals existed in other trade agreements even before Nafta.
"Bilateral investment treaties went both ways," said Todd Weiler, a
Nafta expert at the University of Windsor Law School in Canada, "but in
practice there weren't that many Barbadians or Nicaraguans investing in
the U.S."
But there is substantial Canadian and Mexican investment here. That
means, judges and legal scholars said, that the tribunals have the
potential to upset the settled American constitutional order.
"There are grave implications here," Chief Justice Ronald M. George of
the California Supreme Court said in an interview. "It's rather shocking
that the highest courts of the state and federal governments could have
their judgments circumvented by these tribunals."
