The Case of the Day is United States v. Barry Fischer Law Firm, LLC (S.D.N.Y. 2012). Turist-Cambio Viagens Turismo LTDA was a Brazilian currency exchange company. Kesten Development corp., a British Virgin Islands corporation, was its subsidiary. In the 1990s, three of the companies’ principals, Antonio Pires de Almeida, Ruriko Inoue, and Roseli Ciolfi, were investigated for money laundering in the United States and Brazil. In 1999, the US government seized more than $8 million from the two companies’ bank accounts in the US, and it brought a forfeiture action in New Jersey. Because the government failed to prove that the funds were directly traceable to illegal activities, the case was dismissed and the money ordered returned to Kesten and Turist-Cambio. But before the funds were return, the Federal Court in Curitiba, Brazil, issued a seizure order that covered the two accounts, and the Brazilian government brought criminal charges against the principals. The US District Court for the District of Columbia enjoined the return of the funds pending the outcome of the Brazilian criminal case, but its injunction was later vacated for reasons that are unimportant. Ultimately the Brazlian court convicted Pires de Almeida, Inoue, and Ciofli of various crimes and found that the funds in Kesten’s US bank account were the proceeds of the crimes and that Kesten was merely a shell company that should be disregarded, though the Brazilian judgment was still on appeal and its execution stayed at the time of today’s decision.
While all of this was going on, the US government became aware that there were conflicting claims to the money that had been seized. Brazil claimed the money based upon its seizure order. Barry Fischer, a lawyer, claimed an interest on account of his unpaid legal bills incurred in the successful defense of the forfeiture case. And Tammy Fu and Eleanor Fischer, the liquidators of Trade and Commerce Bank of the Cayman Islands, claimed an interest on account of a default judgment from the British Virgin Islands courts, which had already been recognized in the Bankruptcy Court for the Southern District of New York, that arose out of a claim that Kesten had knowingly received funds stolen from TCB. The United States brought a statutory interpleader action. Ultimately most of the claimants settled with each other, leaving only the claims of Brazil and the liquidators to the funds in Kesten’s account.
Brazil and the liquidators filed cross-motions for summary judgment. One of the key factual issues was whether Kesten was in fact a mere shell company, as the Brazilian court had found. The key question was whether the Brazilian court’s decision regarding Kesten should be recognized and thus collaterally estop the liquidators from claiming an interest in the funds based on Kesten’s interest, which, if the Brazilian decision is given effect, should be disregarded.
The judge began with the proposition that statutory interpleader jurisdiction depends on diversity of citizenship, and thus that New York law governed the question whether the Brazilian judgment should be recognized. 1 Under New York law’s comity principles the judgment will be recognized “absent a showing of fraud in the procurement of the judgment or a showing that recognition of the judgment would do violence to some strong public policy of the state.” Finding no fraud or public policy issues, the judge held that the judgment was entitled to recognition.
Perhaps the most interesting aspect of the decision was the liquidators’ argument that the judgment should not be given preclusive effect in New York because it was not entitled to preclusive effect in Brazil; under Brazilian law judgments are not final until the appeals are decided. The judge pointed out that even though the ordinary rule, in full faith and credit cases, is to give a judgment whatever preclusive effect it has in the rendering state, it is inappropriate to apply full faith and credit principles, which are “peculiar to our legal system,” to foreign country judgments. I want to point out that this case, therefore, is an example of the point I made at the Penn symposium—it may sometimes be appropriate to give a foreign country judgment greater preclusive effect than we would give a sister-state judgment.
- Let’s pause here to note that while the interpleader statute, 28 U.S.C. [section] 1335, does require diversity of citizenship, the court also had jurisdiction under 28 U.S.C. [section] 1345, because the United Stats was the plaintiff. See United States v. Coumantaros, 146 F. Supp. 51 (S.D.N.Y. 1956). I don’t want to get distracted by this, though, because then we would have to delve into the arcana of statutory interpleader versus rule interpleader and I would have to dig out my civil procedure textbook. I will just say that it is not immediately obvious to me that New York law rather than federal law should govern here and leave it at that!