Case of the Day: Ecuador v. Dassum

The case of the day, Republic of Ecuador v. Dassum (Fla. Dist. Ct. App. 2014), has nothing whatever to do with the Lago Agrio litigation. Roberto Isaias Dassum and William Isaias Dassum were indirect shareholders of Filanbanco, an Ecuadoran bank that failed in 2001. Under the law that created the Agencia de Garantia de Depositos—Ecuador’s version of the Federal Deposit Insurance Corporation—the Isaias brothers were jointly and severally liable for the depositors’ losses. Ecuador’s government also determined that the Isaises had “drained the bank’s funds through fraudulent misconduct,” and in 2003, it issued warrants for their arrest. By then the Isaises were living in Miami. (The brothers deny wrongdoing and have set up a website to plead their case).

In 2008, pursuant to a resolution of the Ecuadoran banking authority, the AGD began pursuing the Isaises’ assets in Ecuador. It recovered $400 million by April 209, leaving approximately $260 million for which Ecuador claimed the brothers were still liable.

In 2009, the AGD sued the Isaises for damages in the Miami circuit court. The brothers counterclaimed seeking a declaration that AGD’s orders were “illegal and improper under the law of Ecuador.” The judge granted Ecuador summary judgment on this claim, relying on the act of state doctrine. But in 2013, the Isaises moved for summary judgment, relying on the extraterritoriality exception to the act of state document. The court granted the motion, and Ecuador appealed.

The court reversed and remanded for further proceeding, handing Ecuador a win. Under the act of state doctrine, United States courts, as a matter of comity, will not judge the actions of a foreign state taken within its territory. The easiest example is expropriation. In the leading case, Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), for example, the Court refused to allow expropriated sugar company owners to seek relief in the US courts, even though the expropriation itself was probably wrongful under international law. 1 There is an exception, however, when a foreign government seizes property in the United States. In Republic of Iraq v. First Nat’l City Bank, 353 F.2d 47 (2d Cir. 1965), after a revolution killed King Faisal II, the new Iraqi government enacted a law purporting to seize the king’s assets in the hands of a New York trust company, but after the New York courts appointed an administrator for the king’s estate, the trust company transferred the assets to the administrator. Iraq sued the administrator, and the court held that the act of state doctrine did not apply, because the property Iraq had seized was in the United States, not in Iraq.

Here, the Isaises argued that Ecuador had seized their property in the United States. Not so. Ecuador had simply filed an action against them, claiming to be a creditor. It was for the Florida courts to determine whether Ecuador was entitled to the money. As there had been no seizure, Ecuador’s decision, taken in Ecuador, to find the brothers liable for the depositors’ losses and to seek their assets could not be reviewed by the US court.

Notes:

  1. Note, however, that after Sabbatino Congress, by statute, forbade the courts to apply the act of state doctrine in expropriation cases where the expropriation violated international law, see 22 U.S.C. § 2370(e)(2).

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

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