In complex litigation
over Texas company's provision of telephone services to Mexican customers,
Fifth Circuit, using Texas choice-of-law doctrines based on Restatement of
Conflicts, applies internal law of Texas to contract and tort issues
Telmex, the Mexican telephone company, had a monopoly on Mexican
telephone services until 1996. During 1993 and 1994, Access Telecom, Inc.
(ATI), a Texas corporation, was also providing telephone services to Mexican
customers. The customer would first call ATI in Texas which then would connect
the call to the intended destination. Telmex supplied phone service only within
Mexico while ATI afforded it in the U.S. and to the new destination.
The Mexican leg of each call came through toll-free numbers that
MCI had leased from Telmex and made available to ATI. ATI's services generally
lessened the cost of international telephone calls to and from Mexico.
ATI also provided "call-back" service where the customer
called ATI. ATI did not answer these calls but instead used a kind of
"caller-ID" to call the customer back and then connect the call to
the desired number. [Editors' Note: "call back" telephone services
are still common in Latin American countries because of the high cost of
telephone services charged by the provider companies].
In 1993, the Mexican Secretary of Communications and
Transportation (SCT) requested MCI to stop supplying "call-back
services." Shortly thereafter, Telmex demanded a list of MCI's customers
that provided these services. MCI eventually stopped affording telephone
services to ATI, and AT&T refused to offer services alternative to ATI. As
a result of the Mexican crack down, ATI, along with approximately 80 similar
companies, soon collapsed.
Two years later, MCI obtained an arbitration award of $1.2 million
from ATI covering ATI's unpaid phone bill. A few weeks later, ATI sued MCI,
Telmex, and SBC, a related company, in Texas state court for tortious
interference and contracts claims. Upon removal, the Texas federal court
dismissed the claims against Telmex for lack of personal jurisdiction. The
district court also denied ATI's motion for partial summary judgment that would
uphold the lawfulness of its activities, and granted the motion of MCI and SBC
for summary judgment on all of ATI's claims.
ATI appealed the rulings adverse to it. The U.S. Court of Appeals
for the Fifth Circuit reverses and remands. [See also JURISDICTION (PERSONAL)
below.]
A threshold aspect of this case is how to characterize ATI's
business. The Court classifies ATI as an "exporter of U.S. phone
services" who incidentally and indirectly resold Mexican telecommunication
services. MCI was the reseller under a contract with Telmex.
As between Texas and Mexico, the Court then had to decide (1)
which law governs ATI's tort claim; (2) which law governs the validity of the
contracts and prospective business relations that form the basis of the
tortious interference claims; and (3) whether, if applicable, Mexican law
invalidates the contracts for other reasons.
The Court first notes that Texas uses the "most significant
relationship" test of the Restatement (Second) of Conflict of Laws,
Section 145 as to choice of law in torts. Section 145 focuses on the following
factors: (1) the place where the injury occurred, (2) the place where the
conduct causing the injury occurred, (3) the domicile, residence, nationality,
place of incorporation, and place of business of the parties, and (4) the place
where the relationship between the parties, if any, is centered. Under these
criteria, the Court rules, it would be reasonable to apply Texas tort law in
this case.
As for contract choice of law, the Court notes that the contracts
at issue include ATI's contracts with its Mexican customers, ATI's contracts
with MCI, and ATI's prospective contracts with AT&T. Considering the
conflicts with Mexican authorities, there is also the question of whether these
contracts were valid under the internal law that governed the contract.
Here, the contracts with Mexican customers had choice-of-law
provisions that made Texas law applicable and specified Texas as the place of
contract formation. Texas ordinarily enforces choice-of-law provisions if the
chosen forum has a substantial relationship with the parties and the
transaction. See Restatement (Second) of Conflict of Laws, Section 187.
Following Section 187, however, Texas courts will not honor a
choice-of-law provision if another jurisdiction has a materially greater
interest than the chosen state and if application of the chosen law would
contravene that jurisdiction's fundamental policy. In the Court's analysis,
Texas law determines the validity of the contracts and of the prospective
contracts at issue.
"Mexico would not have a fundamental policy contravened by
the application of Texas law in this case. The export of U.S. telecommunication
services and even the resale of Mexican services does not contravene Mexico's
legitimate monopoly over its domestic lines. Telmex can charge whatever it
likes for incoming and outgoing calls on its lines. The resale of the Mexican
leg either directly by MCI or indirectly by ATI is only profitable if Telmex
allows it to be. If Telmex sets a monopoly price for its initial service,
Telmex recoups all potential monopoly revenues from that fee. ... [...] Texas,
on the other hand, would have a fundamental policy contravened by the choice of
Mexican law (assuming Mexican law is different on the question on contract
validity), namely the ability of Texas companies to make valid export contracts
in Texas for the sale of U.S. services. [Slip op. 17-18]
Under Texas law, a contract made with a view toward violating the
laws of another country is illegal. Texas courts will not enforce it even if it
does not otherwise offend either the laws of the forum or of the place where
the parties made their contract.
In applying the rule to this case, the Court declares: "There
are at least two reasons to defer to foreign law ... even if that law would not
be chosen to govern the contract. First, a contract legal in the U.S. and
illegal in Mexico may place parties in a dilemma. They can either perform the
contract and face Mexican liability (Mexico, after all, may have personal
jurisdiction over the parties). On the other hand, the parties can breach the
contract, but then face U.S. liability for contract damages. ... [...] A
second, but more important, reason to defer to foreign law even if it does not
apply to the contract is the mentioned principle of comity, which suggests that
the U.S. should respect Mexican law on a kind of 'golden rule' basis."
[Slip op. 22-23]
In this case, however, there is no "dilemma." These
facts do not serve as a defense to a claim of tortiously interfering with such
contracts because the alleged tortfeasor does not have to choose between
violating foreign law or suffering U.S. liability.
"... Mexican law at the time was sufficiently unclear and
capable of multiple interpretations as to what was or was not legal. Such
difficulty in interpreting foreign law makes it unreasonable to conclude [that]
any contract was entered with a view to violate foreign law. ... While the
content of foreign law is a legal question, the question of ATI's intention is
not, and there is sufficient evidence to permit a jury to conclude ATI was
acting with the view that their services were legal; as such, summary judgment
against ATI on the tortious interference claims would be improper unless ATI's
activities were illegal under U.S. law or subject to another defence [sic]
..." [Slip op. 27-28]
Citation: Access Telecom, Inc. v. MCI
Telecommunication Corp., No. 98-50881 (5th Cir. December 1, 1999).
**** Terik Hashmi is a business consultant serving businesses in the marketing realm. Among his clients are a medical service provider and an Online Reputation Management company. - Attorney Website at: https://terikhashmiattorney.com/ - Attorney Profile at: https://solomonlawguild.com/terik-hashmi%2C-esq# - Attorney News at https://attorneygazette.com/terik-hashmi%2C-consultant#eec97f53-49a0-4c94-869a-4847514cb694