Case Law Chronicles

Case Law Chronicle #6: Enforcing Awards Against Non-Signatories and Non-Parties: Two Recent Decisions from the Southern District of New York

June 30, 2016

By Gretta Walters, Chaffetz Lindsey LLP

In two recent decisions, the U.S. District Court for the Southern District of New York addressed key issues arising out actions to enforce foreign arbitral awards against non-signatories to an arbitration agreement. The decisions, Alstom Brasil Energia e Transporte Ltda. v. v. Mitsui Sumitomo Seguros S.A.1 and GE Transportation (Shenyang) Co., Ltd. v. A-Power Energy Generation Systems, Ltd.,2 demonstrate that confirmation and enforcement actions in New York are relatively streamlined and that the court will only undertake a limited review of arbitration awards as required by the New York Convention and the FAA. In addition, GE Transportation, in particular, is a reminder that New York courts are willing, where appropriate, to order effective interim or permanent relief in aid of post-award collection, such as worldwide freezing orders.

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Case Law Chronicle #5: Is Sovereign Immunity a Defense to the Recognition of ICSID Award Against Venezuela?

April 7, 2016

Case Law Chronicle: In Amicus Brief to the Second Circuit, U.S. Government Weighs In On Whether Sovereign Immunity Is a Defense to the Recognition of ICSID Award Against Venezuela

By Gretta Walters, Chaffetz Lindsey LLP
April 6, 2016

This is the fifth installment in a regular series offered by NYIAC. Follow this series to learn about recent decisions by New York federal and state courts and for easy access to the full text of the decisions.

Introduction
NYIAC’s second Case Law Chronicle addressed the landmark decision of U.S. District Court for the Southern District of New York (Engelmayer J.) in Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 87 F. Supp. 3d 573 S.D.N.Y. 2015), in which ExxonMobil entities (“Mobil”) sought to enforce a USD 1.6 billion award obtained against Venezuela under the ICSID Convention by filing an ex parte petition to recognize the award as a precursor to enforcement against Venezuela’s assets. As described in the Case Law Chronicle, the Southern District of New York upheld a simple, mechanistic procedure for registering an ICSID award against a sovereign state, despite arguments based on sovereign immunity. Venezuela appealed that decision to the U.S. Court of Appeals for the Second Circuit, where proceedings are pending.

The U.S. Government recently filed an amicus curiae brief with the U.S. Court of Appeals for the Second Circuit in Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, Docket No. 15-707, ECF No. 87 (Mar. 30, 2016), arguing that the Foreign Sovereign Immunities Act (“FSIA”) provides the sole basis for subject matter jurisdiction to enforce an ICSID award against a sovereign state and that the U.S. District Court for the Southern District of New York erred in not following the FSIA’s procedures. The U.S. Government also argues that a federal district court may not modify the interest rate adopted by an ICSID panel. The U.S. Government’s brief requests the Second Circuit to overturn the district court’s February 13, 2015 decision to enforce an ICSID award against Venezuela in Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 87 F. Supp. 3d 573 (S.D.N.Y. 2015).

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Advance Waivers of Arbitrator Conflicts of Interest in International Commercial Arbitrations Seated in New York

April 5, 2016

A recent report issued by the New York City Bar International Commercial Disputes Committee (ICDC), entitled: ‘Advance Waivers of Arbitrator Conflicts of Interest in International Commercial Arbitrations Seated in New York,’ investigates the law and practices concerning advance waivers.

The report sets forth the results of a survey of policies and practices of institutional providers in all major seats around the world with respect to arbitrator requests for advance waivers of conflicts. It also provides some considerations for arbitrators and counsel when drafting advance waivers or advising clients as to the advisability of consenting to such waivers.

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Case Law Chronicle: “To Stay or Not To Stay”: Second Circuit Clarifies Procedure Following Successful Motion to Compel Arbitration

July 31, 2015

by Mark Stadnyk, Norton Rose Fulbright US LLP (New York)

In Michael A. Katz v. Cellco Partnership dba Verizon Wireless, Docket Nos. 14‐138 and 14‐291 (July 28, 2015), the U.S. Court of Appeals for the Second Circuit (the “Court”) addressed an important procedural matter under the Federal Arbitration Act (the “FAA”). Namely, does the FAA require a stay of proceedings when all claims are referred to arbitration and a stay has been requested, or do federal district courts enjoy the discretion to dismiss the case outright after granting such a motion to compel arbitration?

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The Court provided a clear answer to this question: a stay of proceedings is required following a successful motion to compel arbitration of all claims pending before the district court. The alternative—a final order from the district court dismissing the case—would open an avenue for further litigation in the form of an immediate appeal. In Katz, the Court clarified that the FAA and its policy in favor of arbitration leave no room for immediate appeal of a district court decision to compel arbitration

Background
Katz sued Cellco Partnership d/b/a Verizon Wireless (“Verizon”), alleging breach of contract and consumer fraud under New York state law. Katz’s agreement with Verizon incorporated an arbitration clause that invoked the FAA. While he conceded the prima facie arbitrability of his claims, Katz contended that “application of the FAA to those claims was, on various grounds, unconstitutional.” Verizon moved to compel arbitration and to stay the court proceedings.
The District Court for the Southern District of New York (Briccetti, J.) dismissed the constitutional objections to the application of the FAA and granted Verizon’s motion to compel arbitration of all of Katz’s claims. However, it then dismissed the action, albeit recognizing that “whether district courts have such dismissal discretion remains an open question in this Circuit.”[i]
State of Play Before Katz
On appeal, the Second Circuit affirmed the District Court’s grant of Verizon’s motion to compel arbitration. It then acknowledged that “[t]he question whether district courts retain the discretion to dismiss an action after all claims have been referred to arbitration, or whether instead they must stay proceedings, remains unsettled.” The U.S. Supreme Court has not yet decided the matter,[ii] and the “Courts of Appeals [of the various Circuits] are about evenly divided.”[iii] Moreover, even earlier Second Circuit authority on the matter, while not “directly address[ing] the question posed here,” nevertheless “suggested different conclusions.”[iv]
The Court’s Decision – “To Stay or Not To Stay”
The Court held that “a stay of proceedings [is] necessary after all claims have been referred to arbitration and a stay requested.” In other words, under the FAA, district courts in the Second Circuit lack the discretion to dismiss an action after all claims have been referred to arbitration.
First, the Court emphasized the language of the FAA, 9 U.S.C. § 3, which provides that when issues are referable to arbitration, a court “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the [arbitration] agreement” (emphasis added).[v] Second, the Court acknowledged that a “mandatory stay comports with the FAA’s statutory scheme and pro‐arbitration policy.”[vi] The FAA, it observed, “authorizes immediate interlocutory review of an order refusing to compel arbitration or denying a stay of proceedings,” but “explicitly denies the right to an immediate appeal from an interlocutory order that compels arbitration or stays proceedings.”[vii] Yet, the effect of the district court’s dismissal was to “effectively convert[] an otherwise‐unappealable interlocutory stay order into an appealable final dismissal order,” potentially leading to further litigation in contravention of the policy at the heart of the FAA.
While the Court acknowledged the validity of the judicial concern with “efficient docket management,” it held that such interests “cannot trump a statutory mandate, like Section 3 of the FAA, that clearly removes such discretion” from the district courts.
Ramifications of Katz
While Katz was a domestic arbitration, the Court’s interpretation of the FAA’s Section 3 also clarifies the appropriate procedure in international cases within the Second Circuit. When a motion to compel arbitration has been granted with respect to all claims, and a stay has been requested, the district court has no discretion and must grant a stay of the proceedings. As observed by the Court, a stay is in accordance with the pro-arbitration policy of the FAA, as it curtails further litigation while the arbitration proceeds.
United States Court of Appeals for the Second Circuit: Judges Wesley, Livingston, and Carney.
Counsel to Michael A. Katz: William Robert Weinstein (Law Offices of William R. Weinstein).
Counsel to Cellco Partnership, dba Verizon Wireless: Andrew G. McBride and J. Michael Connolly (Wiley Rein LLP).
*The views expressed in this case note do not necessarily reflect the views of Norton Rose Fulbright US LLP or its clients.
[i] Katz at 5. All citations are to the Court of Appeals’ opinion in Katz, unless otherwise noted.
[ii] See Green Tree Fin. Corp.‐Ala. v. Randolph, 531 U.S. 79, 87 n.2 (2000).
[iii] Katz at 7-8, contrasting the Circuit Courts of Appeals “h[o]ld[ing] or impl[ying] that a stay must be entered” (Seventh, Third, Tenth and Eleventh Circuits) with those “suggest[ing] that district courts enjoy the discretion to dismiss the action” (First, Fifth and Ninth Circuits).
[iv] Katz at 6-7 and n. 5.
[v] FAA 9 U.S.C. § 3 provides as follows: “If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” (Emphasis added.)
[vi] Katz at 9.
[vii] Katz at 10.

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Judge Preska Highlights Virtues of New York During Global Law Week

June 8, 2015

By: Andrew Poplinger of Chaffetz Lindsey LLP

The Hon. Loretta Preska, Chief Judge of the SDNY, gave the keynote speech at the New York Bar Association’s Global Law Week, titled “The Elements of Commerce in the Twenty-First Century: How Commercial Courts Enhance a City’s Position as a Financial, Commercial, and Legal Hub.”


Read the highlights here.

NYLJ Special Report features E. Sussman and A. Dosman on Emergency Arbitrators

March 30, 2015

“Evaluating the Advantages and Drawbacks of Emergency Arbitrators,” by Edna Sussman and Alexandra Dosman, in a New York Law Journal Special Report on Alternative Dispute Resolution.


Read the article here.

Case Law Chronicle: Sovereign Immunity Is No Defense to the Recognition of ICSID Award Against Venezuela; New York Court Stays Recognition on Basis of ICSID Internal Proceedings

March 20, 2015

This is the second installment in a regular series offered by NYIAC’s Executive Director, Alexandra Dosman. Follow this series to learn about recent decisions by New York federal and state courts and for easy access to the full text of the decisions.

Below, read more about Mobil Cerro Negro Ltd., et al. v. Bolivarian Republic of Venezuela, Case No. 14 Civ. 8163 (February 13, 2015), in which the the Southern District of New York upheld a simple, mechanistic procedure for registering an ICSID award against a sovereign state, despite arguments based on sovereign immunity. The recognition of the award has been stayed pending resolution of Venezuela’s application to ICSID to review the award. NYIAC has also learned that on February 9, 2015, Venezuela applied to ICSID to annul the award; the ICSID Secretariat is in the process of constituting an ad hoc committee for the annulment proceedings

Sovereign Immunity Is No Defense to the Recognition of ICSID Award Against Venezuela; New York Court Stays Recognition on Basis of ICSID Internal Proceedings

In Mobil Cerro Negro Ltd., et al. v. Bolivarian Republic of Venezuela, Case No. 14 Civ. 8163 (February 13, 2015), the Southern District of New York addressed an issue of first impression in the district: do statutory protections afforded to sovereign states require a “plenary action” in proceedings to recognize international arbitral awards issued under the ICSID Convention, or may a simplified procedure be followed?  In a 50-page decision, Judge Paul A. Engelmayer provided a clear answer: the procedures applicable to the recognition process are simplified and “automatic,” even as against sovereign states. The Court denied Venezuela’s bid to vacate an ex parte order recognizing a USD 1.6 billion ICSID award against it (but stayed the recognition pending further proceedings within ICSID). The case is instructive on several points.

ICSID Awards Become Federal Court Judgments in “Automatic” Process Under New York State Law

This case involved an ICSID award rendered against Venezuela in October 2014. Venezuela declined to pay the award, and the award creditors, ExxonMobil entities (“Mobil”), submitted an ex parte petition to recognize the award in federal court in Manhattan as a precursor to enforcement against the award debtor’s assets. To obtain recognition, Mobil invoked the United States statute enabling the ICSID Convention, which provides that pecuniary obligations imposed by an ICSID award “shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States.” 22 U.S.C. § 1650a(a). The enabling statute does not, however, stipulate a process for how that enforcement is to take place.

In order to fill what Judge Engelmayer observed was a “statutory gap,” Mobil followed the process set out in New York state law for the recognition of foreign judgments entitled to full faith and credit, typically judgments of other United States courts.[1] The procedure is streamlined and involves no substantive review by the court: such a judgment may be registered in an ex parte proceeding, as long as the debtor is notified within thirty days. Mobil petitioned (ex parte) to have the ICSID award registered and converted into a judgment of the federal court. The petition was granted on October 10, 2014, the same day it was filed.

Sovereign Immunity Provides No Defense to Recognition—but Execution is Another Story

Venezuela argued that the order should be vacated because the Foreign Sovereign Immunities Act (“FSIA”) provides exclusive rules for subject matter jurisdiction, service of process, personal jurisdiction, and venue in cases against sovereigns.

As to subject matter jurisdiction, the Court noted that the FSIA itself provides exceptions to sovereign immunity in the case of confirmation of arbitral awards and that Venezuela had waived its immunity in actions to enforce ICSID awards by adhering to the ICSID Convention.  Previous case law in the Circuit had reached the same conclusion.

Questions of service of process, personal jurisdiction, and venue were more complex. The FSIA sets forth special procedures for serving foreign state entities, specifies that the proper venue is the federal court in the District of Columbia, and does not contemplate ex parte actions.[2]  It was uncontested that Mobil did not follow these procedures. Venezuela argued that the order enforcing the ICSID award must be vacated on that basis.

Having examined the history and text of the FSIA, the Court concluded that congressional intent was “unclear as to whether the procedures the FSIA prescribes were to apply to conversion of ICSID awards against foreign sovereigns.” To resolve the ambiguity, the Court analyzed the broader context of the ICSID Convention and its enabling statute, and noted the intent of the drafters to depart from the New York Convention recognition scheme: “the contracting states to the ICSID Convention intended to put in place an expedited and automatic recognition procedure.” The only role of national courts is to confirm the authenticity of ICSID awards. To find that a plenary lawsuit was required to enforce ICSID awards would be contrary to the ICSID Convention and its enabling statute—and would provide recalcitrant award debtors with an “avenue for delay.”

Sovereign immunity will, however, continue to play a role in proceedings to execute against assets of states following the recognition of an ICSID award. Judge Engelmayer noted that the ICSID Convention Contracting States left questions as to immunity against execution to national law. The FSIA’s provisions on execution—limits on what assets are subject to execution, requirement of court approval—will continue to apply when award creditors attempt to collect from a sovereign state.

Federal Courts Defer to Proceedings Within ICSID, Including Stays of Enforcement

The Court deferred to the internal review process at ICSID, noting that it is a “unique” tribunal and that “[a]ny challenge to the award is to be made within ICSID.” Venezuela has in fact applied to ICSID for revision of the award. The ICSID Secretary-General granted a stay of enforcement while those issues are resolved. Noting that stay, the New York federal court adopted the “prudent solution” of staying the enforcement of the award against Venezuela until the stay is lifted by ICSID.  The Court directed the parties to notify it of the status of the ICSID proceedings every 30 days.

According to Venezuela’s latest filings in federal court, which post-date Judge Engelmayer’s decision, on February 9, 2015 Venezuela applied to ICSID to annul the underlying ICSID award awarding Mobil USD 1.6 billion in damages. The ICSID Secretariat is in the process of constituting an ad hoc committee for the annulment proceedings.

What’s Next?

The decision provides a clear answer as to how ICSID awards are recognized in United States courts—automatically and without regard to the FSIA. Given the hotly contested issues of first impression arising before Judge Engelmayer as well as the sums in dispute, an appeal can be considered likely.

However, the award creditors are no closer to collection, because the federal court’s recognition of the award has been stayed and is likely to remain so until the ICSID annulment proceedings conclude.

 

Southern District of New York: Judge Paul A. Engelmayer
SDNY Part I (emergency) Court: Judge J. Paul Oetken

Counsel to Mobil Cerro Negro Ltd., et al. in the SDNY case: Steptoe & Johnson, LLP (Evan Glassman, Jared Robert Butcher, Jeffrey Michael Theodore, Michael Jeremy Baratz, Steven K. Davidson)

Counsel to the Bolivarian Republic of Venezuela in the SDNY case: Curtis, Mallet-Prevost, Colt & Mosle, LLP (Joseph D. Pizzuro, Juan Otoniel Perla)

Tribunal in the underlying arbitration: Gabrielle Kaufmann-Kohler, Ahmed El-Kosheri, and Gilbert Guillaume (Chair/President)


 

[1] Civil Practice Law and Rules (“CPLR”), Article 54. Section 5401 reads: “In this article ‘foreign judgment’ means any judgment, decree, or order of a court of the United States or of any other court which is entitled to full faith and credit in this state, except one obtained by default in appearance, or by confession of judgment.”  A separate article governs recognition of money judgments issued by courts of foreign countries (CPLR, Article 53).

[2] Personal jurisdiction is present when there is both subject matter jurisdiction and proper service of process.


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Expert Q&A on International Arbitration in New York

March 20, 2015

London and Paris traditionally have been the preeminent forums for complex international arbitration, with foreign parties routinely resisting efforts to arbitrate in the US. In recent years, however, New York has emerged as an increasingly popular venue for the resolution of cross-border disputes. Practical Law asked Richard L. Mattiaccio of Squire Patton Boggs (US) LLP to discuss this trend and the reasons behind New York’s growing status as a global center for international arbitration.
Read the full article here:
Practical Law Litigation Magazine (PDF)

Case Law Chronicle: Second Circuit finds that res judicata issue is for arbitrators, not courts

January 15, 2015

This is the first installment in a new, regular series offered by NYIAC’s Executive Director, Alexandra Dosman. Follow this series to learn about recent decisions by New York federal and state courts and for easy access to the full text of the decisions.

 

 

Citigroup, Inc. v. Abu Dhabi Investment Authority, No. 13-4825-cv (January 14, 2015) [Dkt. 86-1], in which the Second Circuit found that under the Federal Arbitration Act, “the preclusive effect of a prior federal judgment confirming an arbitration award is to be left to the arbitrators.”

Second Circuit finds that res judicata issue is for arbitrators, not courts

Who decides: courts or arbitral tribunals? The Second Circuit has put one more issue—whether a federal judgment confirming a prior arbitral award precludes subsequent arbitration of claims—squarely within the remit of arbitrators.  Citigroup, Inc. v. Abu Dhabi Investment Authority, No. 13-4825-cv (January 14, 2015) [Dkt. 86-1] (U.S. Court of Appeals for the Second Circuit)

The case arose out of an investment agreement between Citigroup, Inc. and the Abu Dhabi Investment Authority (“ADIA”) that contained an arbitration agreement. ADIA commenced arbitration, and the arbitrators issued an award in favor of Citigroup. In 2013, the award was confirmed by the United Sates District Court for the Southern District of New York (Daniels, J.).  ADIA appealed to the Second Circuit seeking to vacate the award; the appeal was denied.

Meanwhile, ADIA served a new notice of arbitration on Citigroup under the investment agreement. Citigroup brought a new action in the Southern District of New York to enjoin the arbitration. Citigroup argued that ADIA’s claims were barred by the doctrine of res judicata (claim preclusion) because they could have been adjudicated in the first arbitration. The district court (Castel, J.) compelled arbitration on the basis that Citigroup’s res judicata defense was a matter for the arbitrators, not the court.

On appeal, the Second Circuit agreed, holding that: “The FAA’s policy favoring arbitration and our precedents interpreting that policy indicate that it is the arbitrators, not the federal courts, who ordinarily should determine the claim-preclusive effect of a federal judgment that confirms an arbitration award.” The court noted that the breadth of the arbitration clause (“any dispute that arises out of or relates to the [Investment Agreement], or the breach thereof”) further supported the conclusion that the claim preclusion issue was one for the arbitrators rather than the court.

The Second Circuit’s guidance is clear: “even if we harbored some doubt as to whether the claim preclusion dispute in this case is arbitrable, we would resolve that doubt in favor of arbitration.” Who decides? The arbitral tribunal.

Circuit Judges: Wesley, Hall, Lynch

Counsel to Citigroup: Paul, Weiss, Rifkind, Wharton & Garrison LLP (Leslie Gordon Fagen, Brad S. Karp, Gregory Laufer)

Counsel to ADIA: Quinn Emanuel Urquhart & Sullivan, LLP (Sanford I. Weisburst, Peter E. Calamari, Tai-Heng Cheng)


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U.S. Supreme Court Reverses BG Group v. Argentina

March 7, 2014

On March 5, 2014, the U.S. Supreme Court reversed the D.C. Circuit’s controversial 2012 decision in BG Group PLC v. Republic of Argentina. The Court ruled that an arbitral award rendered by a tribunal constituted under a bilateral investment treaty is entitled to the same broad deference afforded awards rendered by commercial arbitration tribunals.


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