By Rodolfo Rivera
San Luis Potosí, Mexico is home to many maquiladoras — factories owned by foreign (non-Mexican)
entities — to take advantage of the financial incentives associated with the North American Free
Trade Agreement (NAF TA). One such maquiladora made generators and alternators for automobiles.
The maquiladora employed approximately 3,000 workers over various shifts. Its manager was a
Mexican native to Queretaro, a state that borders San Luis Potosí. The maquiladora had been in
existence for more than 20 years. Things seemed to be going well...
That is until it was discovered that the plant manager was corrupt and engaged in many illegal side
deals, such as authorizing the payment of a ransom to recover stolen inventory against the instructions
of senior management. The local Mexican vendor was also corrupt. It provided temporary assembly
line workers, quality control workers, and warehousing for parts. It was discovered that the local
Mexican vendor used forged social security documents for temporary maquiladora workers. The
social security numbers belonged to deceased individuals, thereby enabling the vendor to pocket
more money. After the fraudulent social security documents were discovered, management made the
decision to sever ties with the Mexican vendor — having already terminated the plant manager. While
management was negotiating the payment of the Mexican vendor’s final invoices, the maquiladora
was served with the lawsuit claiming US$20 million dollars in damages for breach of contract. The
contract contained no termination clause. This is where the drama begins. No one at the maquiladora
knew about the contract until the petition was served.
■ ■ Power ofattorney. A power of attorney was provided to the plant manager as part of the normal course of
managing a maquiladora, but the language provided the manager with a great deal of discretion. US companies
operating in Mexico should carefully word powers of authority to include a system of checks and balances.
■ ■ A failed mediation. In Mexico, the law does not provide for discovery. Mexican lawyers are often
reluctant to begin a settlement negotiation, as no one wants to be the first to settle.
■ ■ The verdict. The court ultimately issued a judgment against the factory for US$17 million, including 20 percent taxation.
In preparing to appeal the decision, the team retained outside counsel with extensive appellate court experience.
■ ■ The appeal. Under the first appeal, the judgment was modified to award the plaintiff only US$100,000 dollars in damages plus
US$40,000 in prior invoices due. However, after the final appeal, the lower court ruled that the contracts were simulated and
fraudulent — and modified the decision again — obligating the plaintiff to pay 20 percent of US$17 million or US$3.4 million.