In the U.S., there are various federal and state laws that, subject to certain limited exceptions, prohibit the granting of value (for example, money, gifts, etc.) in exchange for the opportunity to provide goods or services to healthcare recipients or healthcare providers.  These laws include the federal Anti-Kickback Statute, the self-referral prohibition (i.e., Stark Law), the Civil Monetary Penalty (CMP) laws, and any state law equivalents (in Texas, we have the Texas Patient Solicitation Act).  To avoid violations of this complex web of laws, Mexican and other foreign businesses seeking to sell medical-related goods and services in the U.S. should review their marketing plans and proposed contractual arrangements with a U.S.-licensed attorney with healthcare expertise before embarking on any such plans or arrangements.

Mexico also has certain laws prohibiting the granting of value in exchange for the opportunity to provide goods and services to healthcare recipients or healthcare providers.  The Mexican laws are less complex than their U.S. counterparts and are limited to the government sector. 

In general, these Mexican laws prohibit the granting of any payment, gift, or other consideration by bidders or prospective contracting parties on projects involving the supply of equipment or services to public-health related government (or other governmental) entities in Mexico, whether at the federal or state level.  Such entities include, without limitation, Mexico’s Social Security Institute (IMSS) and Institute for Social Security and Services for State Workers (ISSSTE).  There are also Mexican laws that prohibit government officials from receiving such payments, gifts, or other consideration.  Note that even if a payment is permitted under Mexican law, the payment may be prohibited under the U.S. Foreign Corrupt Practices Act (for more on the FCPA, check out The FCPA Blog).

For private bids and contracts in Mexico, including private bid contests organized by private hospitals or doctor groups that are not affiliated with government entities, there are generallyno prohibitions or restrictions on payments, gifts, or other consideration given to such hospitals or doctors.  However, the officers of the hospitals or the doctors may be subject to ethical rules that prohibit or restrict the receipt or acceptance of these benefits.

“Presumed Guilty“, a recent documentary film by Mexican lawyers Roberto Hernandez and Layda Negrete, catalogues the nightmare of passage through the Mexican criminal justice system through the eyes of Antonio Zuñiga, who, at 26, was charged and sentenced to 20 years in prison for a murder he did not commit.

An article by David Luhnow in the October 17-18, 2009, edition of The Wall Street Journal puts the film in context:

Mr. Zuñiga’s case is not unusual in Mexico.  Crooked cops regularly solve cases by grabbing the first person they find, along with a cooked-up story from someone claiming to be an eyewitness.  Prosecutors and judges play along, eager to calm a growing public outcry over high crime rates and rising violatence from Mexico’s war on illicit drug gangs.  In practice, suspects are often presumed guilty.  More than 85% of those charged with a crime are sentenced, according to Mexico’s top think tank, the Center for Investigation and Development, or CIDE.

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Unlike the U.S., Mexico’s legal system has no jury trials.  In the majority of cases, there are also no oral arguments, meaning lawyer’s don’t stand in front of a judge to plead their client’s case.  Judges usually never meet the accused.  Everything is done via paperwork.  Judges are subject to a Napoleonic code of justice, meaning laws are strictly codified, leaving them little room for judgment.

Thanks to the diligent efforts of Rafael Heredia, Mr. Zuñiga’s Mexican defense attorney, and the filmakers, who ran a film of Mr. Zuñiga’s farcical trial before an appeals court judge, Mr. Zuñiga won the appeal and was freed. 

Although “Presumed Guilty” is focused on Mexico’s criminal justice system, the film is illustrative for companies doing business in Mexico because the civil judicial system in Mexico shares many of the criminal system’s features, including its reliance on paperwork and, in some situations, its insidious corruption.  The civil judicial process is also, with some exceptions, notoriously slow and inefficient.  Since Mexico is a civil law country, jury trials do not exist.  Nor does the legal principle of stare decisis as it is used in the U.S. (although under certain limited circumstances Mexican courts recognize the persuasive importance of previous court decisons).  As in Mexican criminal trials, Mexican civil procedure laws require that most evidence in civil lawsuits be presented in writing.  

We once helped a Mexican client retain a former Delaware Supreme Court Justice to provide an expert opinion for use in Mexican litigation.  The opinion, which consisted of dozens of written questions and answers, was prepared in an effort to convince the Mexican court to invoke the Delaware legal theory of piercing the corporate veil to impose liability in Mexico on the Delaware parent corporation of the Mexican litigant.  Incredibly, I too, served as an “expert” in the lawsuit, notwithstanding that my law firm represented the client and that I had received my bar card just two years prior.  My expert opinion answered questions about whether the Delaware parent corporation owned all of the stock of the Mexican litigant, whether the parent had filed its Form 10-K annual reports with the U.S. Securities and Exchange Commission, etc.  To prove our expert qualifications, the former Justice and I had our law degrees and bar certifications notarized and apostilled for delivery to the Mexican judge.  Neither of us were orally deposed or cross-examined nor required to appear in court.  Binders of  documents with counter opinions were presented by opposing counsel.  The case endured for years. 

The moral of the story is that foreign businesses should do their best to avoid litigation in Mexico at all costs.  Here are a few tips:

Know Your Partner.  Perhaps the easiest way to avoid litigation is to be sure to contract with an honest and reliable Mexican business partner.   Before entering into any contractual arrangement, foreign businesses should request references from prospective partners and consider performing a background check on the principals of the prospective partner.  Audited financial statements may be helpful, but only if the audit is performed by a reputable independent accounting firm.  Early and extensive due diligence on prospective business partners, including multiple face-to-face meetings, is essential.  

Seek Guaranties.  Where possible and particularly when there is any doubt about a Mexican company’s capability to satisfy its contractual obligations, foreign businesses should seek to have the obligations guaranteed and secured by the assets of its U.S. or other foreign affiliate companies -provided they exist and have sufficient assets and insurance - and/or its U.S. or other foreign individual affiliates (also with sufficient assets).  

If the guarantors are U.S. persons or entities, the guaranty and security agreements should be governed by and enforceable under laws in the U.S., so that a judgment may be obtained in the U.S. without the need for subsequent enforcement of the judgment in Mexico.   

If the guarantors are non-U.S. persons or entities, counsel to the foreign business should review and determine the enforceability of the guarantees in the foreign jurisdiction. 

If the contract involves the installation, transport or manufacture of goods in Mexico or other significant assets or potential liabilities, the Mexican company should be asked to post a bond and to acquire extensive insurance coverage, preferably payable in the U.S.  for losses arising in Mexico. 

If the contract requires the Mexican company to pay for goods or services, an irrevocable standby letter of credit or other payment guaranty should be requested.  

Choose U.S. Law and Venue or Arbitration in the U.S.  In many cases, contracts between U.S. and Mexican business can be governed by U.S. federal and state law and provide for dispute settlement in U.S. federal and/or state court or by arbitration.  Although resolving disputes in the U.S. is always preferable, if the Mexican counterparty does not have a U.S. subsidiary or other U.S. assets (see “Seek Guaranties” above), then the U.S.  judgment would require enforcement in Mexican courts.