By: Jonathan Hilliard & Timothy Day

On March 27, 2018, the Fourth Circuit published an opinion in BAE Systems Technology v. Republic of Korea’s Defense. The Court affirmed the district court’s grant of BAE’s declaratory judgment and its refusal to issue a permanent anti-suit injunction.

I. Facts and Procedural History

This dispute arose out of a Foreign Military Sale (“FMS”) transaction between the United States and the Republic of Korea (“Korea”). The Executive Branch has the authority to conduct FMS transactions via The Arms Export Control Act, 22 U.S.C. §§ 2751 et seq. Under a FMS transaction, a foreign sovereign may contact the U.S. government seeking to purchase military goods or services. The U.S. government then locates a U.S. contractor that supplies the requested goods and enters into a direct contractual relationship with the contractor. The contractor, however, has no direct contractual relationship with the foreign government, which prevents the foreign government from directly suing the U.S. contractor.  See Sec’y of State for Defence v. Trimble Nav. Ltd., 484 F.3d 700, 707 (4th Cir. 2007).

FMS transactions give significant control to the U.S. government to negotiate the contract and control its price. The foreign government must pay the transaction cost even if it is above initial estimates. A foreign government may elect to procure goods and services through FMS or to purchase directly from a U.S. contractor.  But if the U.S. government deems a military sale particularly sensitive, it may require a FMS transaction.

However, even when a FMS transaction is used, the foreign sovereign may contact a favored U.S. contractor to determine estimated prices and to urge the U.S. government to utilize that particular contractor.

Here, Korea wanted to upgrade its fighter planes, and the U.S. government required Korea to pursue a FMS transaction because of the sensitive nature of the military technology.  Korea solicited bids from various U.S. contractors, including BAE Systems Technology Solutions & Services, Inc. (“BAE”), to prepare for the FMS transaction. On August 1, 2012, Korea and BAE memorialized their understanding in a Memorandum of Agreement. That BAE-Korea agreement authorized Korea to demand payment of the $43.25 million promised in BAE’s Letters of Guarantee if (1) BAE failed to use its “best efforts” to secure the terms specified in the BAE-Korea agreement in the separate agreement between the U.S. and Korean governments, and (2) BAE’s failure to use its “best efforts” delayed conclusion of the government-to-government negotiations. The BAE-Korea agreement also contained a forum selection clause granting jurisdiction to Seoul Central Court. Finally, the BAE-Korea agreement contained a provision that would terminate the agreement upon the execution of an FMS agreement between the U.S. and Korean governments.

Unfortunately, during BAE’s discussions with the U.S. government, the U.S government increased the estimated price of the contract. Thus, Korea demanded the $43.25 million pursuant to its agreement with BAE. Subsequently, BAE filed its claim in district court seeking a declaration that it had not breached any obligations to Korea, and Korea initiated proceeding in Korea to litigate the same issues. Ultimately, the district court granted BAE’s declaratory judgment but refused to enjoin the litigation in Korea. Both parties appealed the district courts rulings.

II. Reasoning and Holdings

Generally, valid mandatory forum selection clauses modify the traditional forum non conveniens framework and have controlling weight except in extreme circumstances. Conversely, permissive forum selection clauses are assessed under the traditional forum non conveniens analysis. The primary difference is that mandatory forum selection clauses only permit a suit to be brought in one location, while permissive forum selection clauses allow a suit to be brought in multiple locations.

Here, the Circuit found that the forum selection clause was permissive because it did not include any excusatory language. As a result, the Circuit assessed the clause under the traditional forum non conveniens analysis and affirmed the district court’s decision that the permissive forum selection clause provided no basis for dismissing the action.

Additionally, Korea argued that the district court erred by not granting it sovereign immunity. However, because Korea submitted a responsive pleading without raising the defense, the Circuit held that Korea waived its sovereign immunity claim. See Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1602 et seq.

Also, Korea challenged the merits of the district court’s grant of summary judgment for BAE. The Circuit reviewed the grant de novo. The Circuit determined that enforcing the contract would undermine the FMS structure in two ways. First, it would undermine the dispute settlement provisions that prohibit suits from being brought between nations or by a foreign sovereign against a U.S. contractor. Second, enforcement of the BAE-Korea agreement would undermine the control the U.S. government retains in all FMS transactions over price. As a result, the Circuit held that the agreement was unenforceable.

Finally, BAE claimed that the Korean litigation threatened the district court’s jurisdiction, because it created the potential for inconsistent judgments. However, the Circuit reasoned that international comity was sufficient since an injunction would “impinge on the sovereignty of the Korean courts (to hear the case) and the Korean government (to litigate it).” As a result, the Circuit held that the district court did not abuse its discretion, and the Circuit upheld the district court’s denial of a permanent anti-suit injection.

By Sophia Blair

On January 4, 2017, the Fourth Circuit published a criminal case, United States v. Schmidt. Richard Schmidt (“Schmidt”) originally pled guilty to traveling in foreign commerce and engaging in illicit sexual conduct in violation of 18 U.S.C. § 2423(c). However, claiming ineffective counsel, Schmidt argued that he did not, as a matter of law, travel in interstate commerce and was actually innocent of the § 2423(c) claim. The district court agreed, but the Fourth Circuit reversed.

Did Schmidt continue to travel in foreign commerce for the purposes of § 2423(c)?

Schmidt had a history of convictions for sex offenses involving young boys. In 2002, Schmidt fled the United States to the Philippines to avoid arrest for making unauthorized contact with a minor during his parole. While in the Philippines, Schmidt worked as a school teacher but was arrested again for molesting young boys. In 2003, Schmidt left the Philippines for Cambodia where he was again arrested for sex offenses. After raping a young boy following his release, Schmidt was deported to the United States and faced several charges including the § 2423(c) violation.

Schmidt petitioned the court to vacate his conviction because he claimed that his travel in foreign commerce ended during his time in the Philippines. Furthermore, he argued that his flight to Cambodia did not constitute independent travel in foreign commerce under § 2423(c). The issue before the Fourth Circuit was, at what time did Schmidt’s travel in foreign commerce end? The Fourth Circuit held that, for the purposes of § 2423(c), Schmidt continued to travel in foreign commerce when he left the Philippines for Cambodia. Therefore, he violated § 2423(c).

Interpreting § 2423(c) “Travel in Foreign Commerce”

§ 2423(c) was enacted as part of the Prosecutorial Remedies and Other Tools to End the Exploitation of Children Today Act (“PROTECT”) of 2003, and was intended to criminalize illicit sexual conduct in foreign places. In order to answer the question before it, the Fourth Circuit had to interpret what “travel” and “foreign commerce” meant for the purposes of § 2423(c). Looking to the Merriam-Webster’s Collegiate Dictionary definition, the court refused to construe “travel” narrowly to mean “en route from one place to another” and instead adopted the broader concept of “movement abroad.” Therefore, a person is still traveling even if they spend a significant amount of time in one place, as long as “the visit is sufficiently transient and contemplates some future departure.” United States v. Jackson, 480 F.3d 1014, 1022 (9th Cir. 2007). Therefore, travel continues until a person returns to their place of origin or permanently resettles elsewhere.

The Fourth Circuit construed “foreign commerce” parallel to the Foreign Commerce Clause to mean “commerce with a foreign country.” Foreign commerce requires a nexus with the United States. As a result, the Fourth Circuit held that “travel in foreign commerce” encompasses movement abroad that maintains some nexus with the United States, though there is no clear standard for what satisfies the nexus requirement.

Schmidt argued that his travel in foreign commerce ended during his stay in the Philippines because he was there for 18 months, obtained a work permit and had a full-time job as a teacher. Additionally, he rented a home and had a local driver’s license. The Fourth Circuit disagreed because his status remained transient, despite Schmidt’s insistence that he never intended to return to the United States. He was using two-month tourist visas, had an “alien employment permit,” maintained assets in the United States, and never purchased any property abroad. He travelled with a U.S. passport and did not make an effort to obtain permanent status in the Philippines or Cambodia. Therefore, Schmidt was traveling in foreign commerce at the time he committed the sexual offenses in Cambodia.


The Fourth Circuit reversed the district court’s judgment and remanded for reinstatement of the judgment of conviction on the § 2423(c) offense.