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Procedural and Jurisdictional Aspects of Enforcing Foreign Arbitral Awards in the United States

Parties seeking to enforce foreign arbitral awards in the United States need to be mindful of important differences in the procedural and jurisdictional rules applicable to such awards, as compared with foreign money judgments. Moreover, a recent decision by the influential U.S. Court of Appeals for the Second Circuit counsels that award-creditors frame their pleadings to make clear the type of arbitral award that is the subject of their enforcement action (domestic, nondomestic or foreign) and whether the action seeks confirmation of a domestic or nondomestic award under the federal court's primary jurisdiction or enforcement of a foreign arbitral award under its secondary jurisdiction. These distinctions are important because they dictate the procedures to be used to enforce a foreign arbitral award in the U.S.

Procedural Requirements for Enforcing Foreign Arbitral Awards in the U.S. Differ from the Procedures for Enforcing Ordinary Money Judgments Secured Abroad.

The United States does not have a uniform federal law governing the enforcement of foreign money judgments and is not a party to any treaty dealing with this subject. Accordingly, the enforcement of foreign judgments in the United States is primarily a matter of state statutory and common law. See Restatement (Third) of the Foreign Relations Law of the United States § 481 cmt. a (Am. Law Inst. 1987). Federal courts hear enforcement actions relating to foreign money judgments only if the judgment creditor can establish either diversity of citizenship jurisdiction, or federal question jurisdiction, with diversity of citizenship jurisdiction being the most commonly invoked jurisdictional ground. In diversity cases, federal courts apply the recognition and enforcement rules of the state in which the federal court sits. Absent a ground for federal jurisdiction, foreign monetary judgments must be enforced through actions brought in state courts.

On the other hand, the recognition and enforcement of foreign arbitral awards, which are awards issued outside the United States, are governed by both treaty and a federal statute. The United States has acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 21 U.S.T. 2517, ("New York Convention"),1 and has implemented its provisions in Chapter 2 of the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 201 et seq. The FAA gives federal courts jurisdiction over all actions to confirm, modify, set aside or enforce awards subject to the New York Convention.

The New York Convention refers to the process of reducing a foreign award to a court judgment as "recognition and enforcement." Article I of the Convention covers "the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought." N.Y. Convention, art. I(1). Pursuant to the Convention, "[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon." Id. at art. III.

Chapter 2 of the FAA, in contrast, refers to a party applying "for an order confirming the award as against any other party to the arbitration," 9 U.S.C. § 207, but also refers in the same statutory section to a court confirming the award absent "grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention."

The Second Circuit, in CBF Industria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58 (2d Cir.), cert. denied, 138 S. Ct. 557 (2017), noted the "confusion regarding whether parties need to confirm a foreign arbitral award," id. at 71, and observed that "Section 207's use of the term 'confirm' may be one source of the confusion." Id. at 72 n. 5. The Court then ruled that the procedure for enforcing a foreign arbitral award does not require a separate "confirmation" as a condition to recognition and enforcement; clarified the meaning of domestic, foreign and non-domestic awards; and explained the nature of primary and secondary jurisdiction in the enforcement context.

The Trial Court Ruling in CBF Industria.

In CBF Industria de Gusa/S/A v. AMCI Holdings, Inc., 850 F.3d 58,2 Brazilian companies and a Swiss company, to whom they sold pig iron, arbitrated a contractual dispute under the rules of the International Chamber of Commerce ("ICC") with Paris, France as the seat. The tribunal, applying French law, rendered an arbitral award in favor of the Brazilian companies, which thereafter commenced an enforcement action in the U.S. District Court for the Southern District of New York. The complaint, invoking the provisions of the New York Convention, sought enforcement against the successor-in-interest to the award debtor and certain alleged alter egos. The trial court dismissed the enforcement action, holding that, under Orion Shipping & Trading Co., Inc. v. E. States Petroleum Corp., 312 F.2d 299 (2d Cir. 1963), cert. denied 373 U.S. 949 (1963), a decision that pre-dates the U.S. acceding to the New York Convention, the award had to be confirmed by a court of competent jurisdiction at the seat of arbitration before it could be enforced.3

The Second Circuit Reversal Clarifying the Law.

The Second Circuit reversed, finding no requirement that a foreign arbitral award be confirmed as a predicate to future enforcement. Rather, the party wishing to enforce the award can do so in a single action. The Court wrote that: "Read in context with the New York Convention, it is evident that the term 'confirm' as used in Section 207 is the equivalent of 'recognition and enforcement' as used in the New York Convention for the purposes of foreign arbitral awards." Id. at 72. Thus, an action to convert a foreign or nondomestic arbitral award into a judgment is an enforcement action, notwithstanding that the reference in § 207 of the FAA is to 'confirming" such an award. Id. at 75.

The decision explains the nature of the different categories of arbitral awards and the difference between primary and secondary jurisdiction. Under the Convention, the court of the country where the award was made has primary jurisdiction and therefore may modify or set aside the award in accordance with applicable law. All other signatory states are secondary jurisdictions in which "parties can only contest whether the State should enforce the arbitral award." 850 F.3d at 71. This principle is well-established. In Yusuf Ahmed Alghanim & Sons v. Toys "R" Us, Inc., 126 F.3d 15, 23 (2d Cir.1997), the Second Circuit earlier explained the nature of the Convention:

The Convention mandates very different regimes for the review of arbitral awards (1) in the state in which, or under the law of which, the award was made, and (2) in other states where recognition and enforcement are sought. The Convention specifically contemplates that the state in which, or under the law of which, the award is made, will be free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief. See Convention art. V (1)(e). However, the Convention is equally clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the Convention.

The bottom-line is that if an award is purely domestic, FAA Chapter 1 and state laws apply, not the New York Convention. Awards made in one country, for which enforcement is sought in another country, are foreign awards, to which the Convention does apply. The proper term for the single-step process in which a federal district court engages when it sits in secondary jurisdiction over a foreign arbitral award is "enforcement."

Under the Convention, and Second Circuit precedent, a "nondomestic" arbitral award "is an award that is 'made' in the United States" because the parties agreed to the U.S., as the place of arbitration or seat,4 but which is international because it was "made within the legal framework of another country," or decided under U.S. law but either involved entities that are not U.S. citizens or property located abroad. 850 F.3d at 73. "The process by which a nondomestic arbitral award is reduced to a judgment by a federal court under its primary jurisdiction is called 'confirmation.'" Id. (Emphasis in original) (citing Restatement (Third) of the U.S. Law of Int'l Commercial Arbitration § 1-1(g) (Am. Law Inst., Tentative Draft No. 2, 2012). Confirmation "is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court." Id.

The Second Circuit advised that to avoid confusion in the future, litigants should "specify explicitly the type of arbitral award the district court is evaluating (domestic, nondomestic or foreign)," whether the court has primary or secondary jurisdiction, and whether the action "seeks confirmation of a domestic or nondomestic award under the district court's primary jurisdiction or enforcement of a foreign arbitral award under its secondary jurisdiction." Id. at 75.

Jurisdictional Requirements for Enforcement.

Commencing an action in U.S. courts requires that the party satisfy the requirements for both subject-matter (i.e., court) and personal jurisdiction. Section 203 of the FAA, 9 U.S.C. § 203, supplies subject-matter jurisdiction over foreign arbitral awards by expressly providing that original jurisdiction for "[a]n action or proceeding falling under the [New York] Convention" lies in the United States federal district courts. 9 U.S.C. § 203. The Second Circuit has long required that the party seeking to enforce a foreign arbitral award demonstrate personal jurisdiction over the award debtor (or in rem or quasi-in-rem jurisdiction), proper venue, and that any forum non conveniens defense has been overcome. Frontera Res. Azerbaijan Corp. v. State Oil Co. of Azerbaijan Republic, 582 F.3d 393, 398 (2d Cir. 2009).

On the other hand, New York state courts have in the past held that a foreign money judgment is enforceable in New York under Article 53 of the New York Civil Practice Law and Rules ("CPLR"), even if the judgment debtor is not subject to personal jurisdiction in the state, and has no assets there. The courts have reasoned that recognition of a foreign money judgment is simply ministerial. Lenchyshyn v. Pelko Elec., Inc., 723 N.Y.S. 2d 285, 291 (4th Dep't 2001) (no personal jurisdiction requirement); Abu Dhabi Commercial Bank PJSC v. Saad Trading, Contracting & Fin. Servs. Co., 117 A.D. 3d 609, 613 (N.Y. Sup. Ct. 2014) (following Lenchyshyn). Accordingly, some foreign arbitral-award creditors have sought recognition of foreign judgments, (i.e. awards confirmed at the seat and converted into judgments), rather than the awards themselves, in order to avoid these jurisdictional hurdles and take advantage of an extended statute of limitations.5

This New York state law was recently narrowed, at least in the First Department, in Albaniabeg Ambient Shpk v. Engel S.p.A., 160 A.D. 3d 93 (1st Dep't 2018), which permitted a CPLR Art. 53 proceeding only when the judgment debtor "does not contend that substantive grounds exist to deny recognition to the foreign judgment." Otherwise, the court action is no longer ministerial, and the judgment creditor must demonstrate either personal or quasi-in-rem jurisdiction. Accord Diaz v. Galopy Corp. Int'l, N.V., 79 N.Y.S. 3d 494, 498 (N.Y. Sup. Ct. 2018) ("Only when a judgment debtor opposing recognition of a foreign country judgment asserts substantive statutory grounds for denying recognition, must there be either in personam or in rem jurisdiction in New York."). Lenchyshyn v. Pelko Elec., Inc., however, which dispenses with the personal jurisdiction requirement, currently appears to remain good law in the Fourth Department.

Arbitral awards against foreign states (and this includes ICSID Convention awards) can be enforced in the U.S. only by commencing an action that complies with the jurisdictional and procedural requirements of the Foreign Sovereign Immunities Act (the "FSIA"). The FSIA provides an exception to foreign sovereign immunity for actions to confirm arbitration awards that are made pursuant to an agreement to arbitrate and are governed by an in-force U.S. treaty calling for the recognition and enforcement of foreign awards. 28 U.S.C. § 1605(a) (6)(B); Tatneft v. Ukraine, 301 F. Supp. 3d 175 (D. D.C. 2018). In both Mobil Cerro Negro, Limited v. Bolivarian Republic of Venezuela, 863 F.3d 96 (2d Cir. 2017) and Micula v. Government of Romania, 714 Fed. App'x 18 (2d Cir. 2017), the Second Circuit reversed trial court judgments granting recognition to foreign arbitral awards against foreign sovereigns because the procedures bypassed the requirements of the FSIA. Even when a sovereign cannot claim immunity, however, Section 1609 of FSIA provides that the sovereign's property is immune from "attachment, arrest and execution," except in certain limited circumstances.

The Second Circuit has provided guidelines for enforcing a foreign arbitral award in the United States. The Court clarified that there is no requirement that the foreign arbitral award be confirmed, only that it be recognized and enforced. Practitioners should be careful to evaluate the nature of the arbitral award, and the jurisdictional requirements for enforcement, before commencing an enforcement action in the U.S.

  1. Chapter 3 of the FAA implements the Inter-American Convention on International Arbitration, also known as "The Panama Convention." This convention governs international arbitral awards only when the parties have agreed to such coverage, or "a majority of the parties to the arbitration agreement are citizens of a State or States that have ratified or acceded to the Panama Convention and are member States of the Organization of American States." 9 U.S.C. §305.
  2. There were two opinions, the initial opinion, CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., 846 F.3d 35 (2d Cir. 2017), and the revised opinion, cited above. The Second Circuit remanded for further proceedings. On June 15, 2018, the district court denied the corporations' motion to dismiss, and allowed plaintiffs to pierce the corporate veil. CBF Industria De Gusa S/A/ v. AMCI Holdings, Inc., 316 F. Supp. 3d 635 (S.D.N.Y. 2018).
  3. In Orion, the Second Circuit held that "an action for confirmation [of an arbitration award] is not the proper time for a District Court to 'pierce the corporate veil.'" Id. at 301; see also Daebo Int'l Shipping Co., Ltd. v. Americas Bulk Transp. (BVI) Ltd., No. 12 Civ. 4570 (PAE), 2012 WL 6212614, at *3 (S.D.N.Y. Dec. 13, 2012) ("[U]nder Second Circuit precedent, a petition to confirm a foreign arbitral award is an inappropriate forum to adjudicate alter-ego collection proceedings.").
  4. An arbitral award is "made" in the country of the "arbitral seat," i.e. "the jurisdiction designated by the parties or by an entity empowered to do so on their behalf to be the juridicial home of the arbitration." CBF Indústria de Gusa S/A 850 F.3d at 70 (citing Restatement (Third) of the U.S. Law of Int'l Commercial Arbitration §§ 1-1(s), (aa) (Am. Law Inst., Tentative Draft No. 2, 2012)).
  5. New York has a 20 year statute of limitations for enforcing judgments. CPLR § 211(b). Section 9 of the FAA, 9 U.S.C. § 9, provides that "at any time within one year after the award is made" any party to the arbitration may apply to the court for an order confirming the award; and Section 207 of the FAA, 9 U.S.C. § 207, provides that a party seeking confirmation of an arbitral award under the Convention must apply within three years from when the award was made. Courts have ruled that the New York Convention, and the FAA, "go only to the enforcement of a foreign arbitral award and not to the enforcement of foreign judgments confirming foreign arbitral awards." National Aluminum Co., Ltd. v. Peak Chemical Corporation, Inc., 132 F. Supp. 3d 990,994 (N.D. Ill. 2015) (quoting Seetransport Wiking Trader Schiffahrtsgesellschaft MBH & Co. v. Navimpex Centrala Navala, 29 F.3d 79, 80-81 (2d Cir. 1994)).