Proskauer Rose International Practice Guide Proskauer Rose LLP |
      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
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  1. Which procedural rules will apply to enforcement proceedings?
    1. Chapter 1 of the FAA will apply if (i) the arbitration took place in the United States, (ii) U.S. federal or state procedural rules were utilized in the arbitration; (iii) one of the parties to the arbitration is from a country that is not a signatory to either the New York Convention or the Panama Convention; or (iv) the arbitral award arises out of an agreement that is not commercial in nature.
      1. Grounds for denial of enforcement if FAA applies - The grounds to deny enforcement are greater under the FAA than under the New York Convention.
    2. New York Convention will apply if the arbitral award arises out of an agreement that is commercial in nature, and between parties of more than one contracting state. 9 U.S.C. § 202.
      1. If all parties are U.S. citizens, the New York Convention will still apply if the agreement or transaction involves property located abroad, envisages performance abroad, or has some other relationship to a foreign state. Id.
      2. What constitutes a "commercial" agreement?
        1. "Commercial" is broadly construed by the courts. See, e.g., Island Territory of Curacao v. Solitron Devices, Inc., 356 F. Supp. 1, 13 (S.D.N.Y. 1973) (finding contract between United States manufacturer and foreign government concerning the construction of factory buildings for manufacturer "seems clearly to be ‘commercial.'")
        2. Insurance policies are considered commercial. See Best Concrete Mix Corp. v. Lloyd's of London Underwriters, 413 F. Supp. 2d 182 (E.D.N.Y. 2006).
        3. In JSC Surgutneftegaz v. President & Fellows of Harvard College, 2005 U.S. Dist. LEXIS 15991, at *4 (S.D.N.Y. August 3, 2005), affirmed, 2006 U.S. App. LEXIS 3846 (2d Cir. N.Y., Feb. 15, 2006), the court found that deposit agreement governing the sale of American Depository Shares of Russian oil and gas company, which contained an arbitration clause requiring arbitration in the United States was commercial in nature.
      3. If the business transaction does not constitute a commercial transaction, and instead falls within sovereign activity, then the transaction will be covered by foreign sovereign immunity and the New York Convention will not apply.
        1. The granting of a license by a sovereign state to operate within its territory to extract natural resources does not fall within the ambit of the New York Convention. Honduras Aircraft Registry, Ltd. v. Government of Honduras, 119 F.3d 1530, 1537 (11th Cir. 1997).
  2. Jurisdiction and Venue under the New York Convention
    1. Subject Matter Jurisdiction
      1. Chapter II of the FAA provides for subject matter jurisdiction in the federal courts for proceedings falling under the New York Convention. 9 U.S.C. §§ 201-08.
      2. Under the New York Convention, in order to invoke the federal district court's subject matter jurisdiction for an enforcement proceeding, the petitioner must supply at the time of the petition a certified copy of the arbitral award, the agreement to arbitrate, and certified translations of the two documents, if necessary. Art. IV.
      3. The agreement to arbitrate must, among other things, be "in writing," which is defined to be "in an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams." Art. II.
        1. This has been construed broadly in favor of enforcement of foreign awards. See, e.g., Stony Brook Marine Transportation Corp. v. Wilton, 1996 U.S. Dist. LEXIS 22222, 1997 AMC 351 (E.D.N.Y., 1996) (holding that mention of arbitration provision in an insurance binder was enough to constitute an agreement in writing to arbitrate). But see, Sen Mar, Inc., v. Tiger Petroleum Corp., 774 F. Supp. 879 (S.D.N.Y., 1991) (fax from one party, objected to by the other party, was not an agreement to arbitrate).
      4. The District Court of the District of Columbia recently dismissed a petition to enforce an arbitral award rendered in favor of Moscow Dynamo, a professional hockey club in Russia, against Alexander Ovechkin, one of its former star players who left Russia to play in the National Hockey League, which awarded Dynamo the right to force Ovechkin to play for it instead of the NHL's Washington Capitals. Moscow Dynamo v. Ovechkin, 412 F. Supp. 2d 24 (D.D.C. 2006). The court found that the club had failed to demonstrate the court's subject matter jurisdiction under Article II and IV of the Convention to enforce the award because the club could not point to an actual exchange of written communications between the club and Ovechkin demonstrating Ovechkin's assent either to enter into a new agreement to play for Dynamo after his contract had expired, or to arbitrate any dispute about such agreements. The implied agreement that Dynamo was relying on, interestingly, may have been sufficient under the FAA for domestic arbitrations, but was not for the enforcement of the foreign award. Proskauer represented Ovechkin, the winning party, in this matter.
        1. This case is also important, as it declined to follow a recent Second Circuit case, Sarhank Group v. Oracle Corp., 404 F.3d 657 (2d Cir. 2005), which held that an allegation of an absence of a valid agreement to arbitrate under Article II would not deprive the court of subject matter jurisdiction, but was available as an affirmative defense to enforcement. The Sarhank decision leaves respondents who would otherwise be able to have a court dismiss a petition at an early stage for lack of subject matter jurisdiction, stuck in the position of having to brief and argue all defenses to enforcement it may wish to raise at a hearing on the enforcement of an award. In the rare case where discovery may be necessary for a defense to enforcement, that party may have to undergo costly discovery prior to having its case dismissed on jurisdictional grounds.
    2. Venue
      1. Prevailing parties in arbitration may bring enforcement proceedings in any district court that would have been a proper venue if the parties did not have an arbitration agreement, or in the district where the place of arbitration was designated. 9 U.S.C. § 204.
  3. Limitations to access to District Court
    1. Personal Jurisdiction
      1. Some courts have held that a court must have personal jurisdiction over the parties in order to entertain a petition to enforce a foreign arbitral award. See, e.g., Base Metal Trading, Ltd. v. OJKS "Novokuznetsky Aluminum Factory", 283 F.3d 208 (4th Cir. 2002), and 47 Fed. Appx. 73 (3d Cir. 2002). In the two similar Base Metal cases, both the Third and Fourth Circuits undertook a traditional analysis of personal jurisdiction and found that, because the petitioner could not establish the respondent's minimum contacts with the jurisdiction, the court could not enforce the arbitral award. Petitioner had identified property in states in each circuit that belonged to respondent, but both courts found that insufficient for jurisdictional purposes because the property was not related to the underlying dispute. The Third Circuit recognized that, had petitioner argued for in rem jurisdiction over the property, a district court may have been able to enforce the award to the extent assets were available to satisfy the award. The Ninth Circuit reached a similar result in Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarian Co., 284 F.2d 1114 (9th Cir. 2002), holding that petitioner could not establish respondent's requisite contacts with the jurisdiction to afford personal jurisdiction, and finding that petitioner had not identified any assets in the jurisdiction to allow quasi in rem jurisdiction.
      2. These decisions, although perhaps constitutionally sound, greatly reduce the power of the New York Convention and the goal of international consistency and reduce the U.S.'s credibility when it engages in treaty negotiations. The purpose of enforcement is to be able to satisfy, at least in part, an arbitral award using assets wherever they may be found. Requiring personal jurisdiction for what is simply an execution proceeding arguably inappropriately limits a prevailing party's rights under the Convention. Further, it may allow a losing party to shield assets from execution, especially if the nature of that party's assets in the jurisdiction is not known].
        1. Indeed, the Court in Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403,1414-15 (2009) declined to follow the line of reasoning in the Base Metal cases, stating that the "[c]onstitutional analysis for each of the 50 States required under the First Circuit's approach is undesirable and eminently avoidable by allocating burdens sensibly." 
    2. Forum non conveniens
      1. One of the more controversial issues is whether the doctrine of forum non conveniens applies to enforcement proceedings under the New York Convention. In Monegasque De Reassurances S.A.M. ["Monde Re"] v. Nak Naftogaz of Ukraine, 311 F.3d 488, 495 (2d Cir. 2002), the Second Circuit found that, because Article III of the Convention states that "each 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," and because forum non conveniens is a procedural rule, courts are permitted to dismiss cases if there is an adequate alternative forum and if the movant can meet the familiar factors in favor of dismissal set forth in Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947). The Monde Re court found that the parties and the dispute had no connection to New York and affirmed a forum non dismissal.
      2. Perhaps Monde Re should be limited to its peculiar facts, which included an attempt by the petitioner to enforce the award against the government of Ukraine, which was not a signatory to the agreement and did not participate in the arbitration, under a veil-piercing theory. The court, however, did not limit its holding to these facts.
      3. At least one court has disagreed with Monde Re. In Higgins v. SPX Corp., 2006 WL 1008677 (W.D. Mich. Apr. 18, 2006), the court held that, even though the Gulf Oil factors strongly favored a dismissal for forum non in favor of a previously filed suit in Brazil (the situs of the arbitration) to vacate the award, such a dismissal was unwise. Rather, the court stayed enforcement proceedings, finding it was a proper and convenient forum to enforce the award (once the Brazilian court rejected the application to vacate) because respondent had assets in Michigan. That decision supports the policy behind the New York Convention, which is to allow ready enforcement of a foreign arbitral award in any signatory country where there may be assets of the losing party.
      4. In Satyam Computer Services, Ltd. v. Venture Global Engineering, LLC, No. 06-2056 (6th Cir. May 25, 2007), the Sixth Circuit affirmed the district court's enforcement of an arbitral award and its denial of respondent's motion to dismiss based on forum non conveniens, finding that because, inter alia, respondent was a Michigan company, the award involved the transfer of its assets and stemmed from an agreement entered into in accordance with Michigan law, respondent could not show that Indian courts had a greater interest in deciding the matter. Proskauer represented the winning party here.
    3. Limitations period
      1. The statute of limitations to enforce an award under the New York Convention is three years. 9 U.S.C. § 207.
    4. Procedure and burden of proof
      1. Under the New York Convention, recognition and enforcement proceedings are intended to be summary in nature.
      2. Procedure for initiating a recognition and enforcement proceeding.
        1. It depends on the district court. Each court has slightly different rules as to the form - whether the proceeding should be styled as a petition, a complaint, a motion, etc. In the end, however, the Courts have held that the proceedings are intended to be summary in nature.
      3. "The court shall confirm the award unless it finds one of the grounds for refusal or deferral or recognition or enforcement of the award" applies. 9 U.S.C. § 207; see also M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 851 (6th Cir. 1996). "Absent extraordinary circumstances, a confirming court is not to reconsider the arbitrator's findings." Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310, 315 (2d Cir. 1998).
      4. Foreign arbitral awards are "presumed to be confirmable" and the burden of proof rests the party defending against enforcement of the Award. Czarina, L.L.C. v. W.F. Poe Syndicate, 358 F.3d 1286, 1292 n. 3 (11th Cir. 2004). "The showing required to avoid summary confirmance is high." Yusuf Ahmed Alghanim & Sons, W.L.L v. Toys R Us, 126 F.3d 15, 23 (2d Cir. 1997), cert. denied, 522 U.S. 1111 (1998).

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