Judgment Recognizes Arbitral Award Against Foreign State
—By Lester M. Kirshenbaum and Alan E. Rothman
A very recent federal court decision issued out of the Southern District of New York contains a number of significant rulings, including some of apparent first impression in the Southern District, which should facilitate the recognition and enforcement within the United States of pecuniary international arbitration awards against foreign sovereigns related to private investments in foreign countries. In the case of Mobil Cerro Negro v. Bolivarian Republic of Venezuela, No. 14 Civ. 8163 (S.D.N.Y. Feb. 13, 2015), U.S. District Judge Paul Engelmayer upheld the ex parte $1.6 billion judgment which that court had previously entered in favor of certain Exxon/Mobil subsidiaries against Venezuela, based on an arbitration award issued by the International Centre for Settlement of Investment Disputes (the ICSID). Mobil's claim arose out of Venezuela's expropriation of Mobil's assets in 2007.
In 1965, the World Bank proposed the promulgation of an international treaty to encourage private outside investments in developing countries by establishing the ICSID as a neutral forum for arbitrating disputes arising from those investments. That treaty (the ICSID Convention or the Convention) became effective in 1966 upon its ratification by 20 sovereign states, including the United States. At present, approximately 150 countries (Contracting States) are signatories to the ICSID Convention.1
For purposes of this article, note should be made of the following convention provisions:
1. The ICSID's jurisdiction extends to any legal dispute arising directly out of an investment2 between a Contracting State and a national of another Contracting State where the two sides mutually agree in writing to arbitrate before the ICSID (Convention Article 25).
2. Each Contracting State must recognize and enforce within its territory the pecuniary obligation established under an ICSID arbitral award as if such arbitral award was a final judgment of a court in that Contracting State (Convention Article 54).
3. ICSID awards are not subject to judicial review and cannot be challenged in a court within a Contracting State where recognition and enforcement is sought (Convention Article 53). Thus, ICSID monetary awards are more secure than awards from other international arbitral tribunals or foreign country court judgments, which generally are subject to limited judicial review in the courts of the country where recognition and enforcement are sought.
4. Article 55 provides that nothing in Article 54, which obligates Contracting States to recognize and enforce ICSID arbitral awards, adversely impacts the law in force in a Contracting State relating to immunity of a foreign state's assets from execution.
The U.S. legislation providing for the implementation of the ICSID Convention is contained in 22 U.S.C. §1650a. That statute provides that the federal district courts have exclusive jurisdiction over actions to enforce ICSID arbitration awards, and that the provisions of the Federal Arbitration Act (which contain the procedures for the recognition and enforcement of international arbitration awards under the New York Convention) do not apply to ICSID awards. That U.S. enabling statute further provides in applicable part that:
An [ICSID arbitral] award…shall create a right under a treaty of the U.S. The pecuniary obligations imposed by such an award shall be enforced and shall be given the same full faith and credit as…a final judgment of a court of general jurisdiction of one of the several states.
In 1976, approximately 10 years after enacting the legislation implementing the ICSID Convention, the United States enacted the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. §1602, et seq.
The FSIA includes a number of exceptions to sovereign immunity from litigation in the United States, including actions in the following instances:
1. To confirm an arbitral award which is "governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards." 28 U.S.C. §1605(a)(6)(B).
2. Where the foreign state "has waived its immunity either explicitly or by implication." 28 U.S.C. §1605(a)(1).
3. Based on the foreign state's commercial activities in the United States or on an act performed in the United States in connection with the foreign state's non-U.S.-based commercial activity. 28 U.S.C. §1605(a)(2).
The FSIA also provides certain procedural protections to foreign sovereigns who are subject to U.S. court action under the FSIA. Among other things, Section 1608 of the FSIA provides alternative procedures to insure that the foreign sovereign is served with the summons and complaint in the action against it; and affords to the foreign state a full 60 days after service has been made to answer the pleadings. Also, the FSIA added subdivision (f) to the venue provisions in 28 U.S.C. §1391 to provide that the proper venue for a suit against a foreign state is in federal district court in either Washington, D.C., or in the judicial district where a substantial part of the activity resulting in the claim occurred.
Finally by way of background, Article IV of the U.S. Constitution provides that a judgment issued by a court of any state is entitled to "full faith and credit" in every other state within the nation. New York, as most other states, follows the procedure for the recognition and enforcement of sister-state judgments (also known as foreign state judgments) contained in the Uniform Act codified in CPLR Article 54. Consistent with the procedure in most other states, New York provides for an ex parte procedure whereby the sister-state judgment is registered with the clerk in New York state court, and it then becomes an enforceable New York court judgment.
Notice of the entry of that New York judgment must be given to the defendant within 30 days after its entry by the state court. Further, in Keeton v. Hustler Magazine, 815 F.2d 857 (2d Cir. 1987), the U.S. Court of Appeals for the Second Circuit held that the CPLR Article 54 procedure may be followed to register an out-of-state federal court judgment with the federal court in New York.
The Mobil Decision
With this background, we now review the decision in Mobil. On Oct. 10, 2014, one day after the issuance of an ICSID arbitral award, Mobil filed its ex parte petition in federal court in New York for recognition of the $1.6 billion arbitral award, and for the entry of judgment in that amount. The district court's order entered that same day granted the requested relief and provided, in part, as follows:
The pecuniary obligations in the Final Award in favor of the ExxonMobil entities and against Venezuela shall be recognized and entered as a judgment by the Clerk of this Court in the same manner and with the same force and effect as if the Final Award were a final judgment of this Court, as authorized by 22 U.S.C. §1650a and Article 54 of the ICSID Convention.
Several days later, Venezuela moved to vacate that ex parte judgment. Venezuela argued that neither Article 54 of the ICSID Convention, nor the U.S. enabling statute authorized the issuance of a federal court judgment on an ICSID arbitration award on an ex parte basis.
Venezuela also argued that the provisions of the FSIA superseded the provisions of the earlier federal enabling statute, and that under the FSIA the judgment entered by the federal court in New York should be vacated on two grounds.
First, the federal district court in New York was an improper venue for Mobil's action to recognize and enforce the pecuniary arbitration award against Venezuela. Rather, the recognition and enforcement action against Venezuela could only be brought in federal district court in Washington D.C.
Second, Venezuela argued that under the FSIA, it was entitled to service of all pleadings in all actions against it in advance of court hearings or rulings on the requested relief; therefore, it was impermissible for the New York federal district court to grant Mobil's requested relief on an ex parte basis, or to grant the relief requested by Mobil before giving Venezuela ample opportunity to respond. Stated differently, Venezuela asserted that the action to recognize and enforce the ICSID's pecuniary arbitral award must be brought in a plenary action in a federal district court that otherwise had both personal jurisdiction over Venezuela and subject matter jurisdiction over the dispute.
In his decision, Judge Engelmayer rejected all of Venezuela's arguments. He noted that there are a number of prior Southern District of New York decisions which permitted use of New York State's ex parte recognition procedures to obtain judgments on ICSID arbitral awards. As Engelmayer further observed, the ICSID enabling statute provides that pecuniary ICSID arbitral awards are entitled to "the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the" other states, and the ICSID Convention makes clear that its ICSID awards are not "subject to any appeal or to any other remedy…" Mobil, slip op. at 7, 9.
Additionally, on a ruling of apparent first impression in the Southern District, Engelmayer held that the Mobil case falls squarely within two of the exceptions to the sovereign immunity under the FSIA (which were noted above). The Mobil action was brought to confirm an arbitral award governed by the ICSID Convention, an international treaty in force in the United States. Also as a contracting party to the ICSID Convention (until its withdrawal in 2012), Venezuela had implicitly waived its immunity to U.S. court jurisdiction over the Mobil action. Therefore, Mobil was free to commence its action against Venezuela in the Southern District, and Mobil's ex parte petition for recognition of, and entry of judgment on, the ICSID arbitral award was not barred by the FSIA.
Finally and importantly, toward the end of his decision, Engelmayer ruled that §1610(c) of the FSIA is applicable to Mobil v. Venezuela. Therefore, pursuant to that provision Mobil may only execute on Venezuela's commercial assets upon express court order permitting the execution. Furthermore, such a court order may only be issued after the court determines that a "reasonable period of time" has elapsed following the entry of judgment and the giving of any notice required under 28 U.S.C. §1608(e).
Summary and Conclusion
As a general proposition, current U.S. statutory law and case law provide mechanisms for the recognition and enforcement of international arbitration awards and foreign country monetary judgments on an expedited basis. However, virtually all such proceedings must be brought as plenary actions on notice to the defendants, thus giving the defendant the right to challenge the recognition and enforcement request on limited grounds.
The Mobil v. Venezuela decision highlights that a private party receiving a pecuniary ICSID arbitral award against a foreign sovereign may proceed to obtain recognition and enforcement of such an award in the U.S. federal court of its choosing, on an ex parte basis. Obviously, this is quite a potent remedy that may encourage private investors to litigate their investment-related claims against foreign sovereigns before the ICSID, and also encourage those private investors to enforce such awards in the United States.
1. Venezuela withdrew from the ICSID Convention in 2012. However, that withdrawal did not affect the ICSID's jurisdiction over the Mobil/Venezuela dispute—where both the acts giving rise to Mobil's claims and the commencement of the ICSID arbitration proceeding preceded Venezuela's withdrawal.
2. Investment can include, among other things, equity shares and debt instruments of a company, claims to money under contracts, intellectual property rights, inventions in all fields of human endeavor, industrial designs, trade secrets, know-how and confidential business information, licenses, permits, and business concessions conferred by law or under contract, including concessions to search for, cultivate, extract or exploit natural resources. Compare the definitions of Investment contained in the Bilateral Agreements for the Promotion and Protection of Investments between (i) Great Britain and Venezuela (March 15, 1995); (ii) Argentina and the U.S. (Nov. 14, 1991); and (iii) Israel and the Czech Republic (Sept. 23, 1997).
Reprinted with permission from the March 13, 2015 edition of the New York Law Journal © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382—email@example.com or visit www.almreprints.com.