Lawrence W. Newman and David Zaslowsky ()
Over the years, we have addressed in this column U.S. court decisions concerning some of the more interesting issues in the area of international dispute resolution. In today’s column, we revisit some of those issues in the context of recent decisions relating to the following subjects: the Alien Tort Statute (ATS), the Foreign Sovereign Immunities Act (FSIA), enforcement in the United States of arbitral awards vacated abroad and manifest disregard of the law.
The Alien Tort Statute
Enacted in 1789 as part of the first Judiciary Act, the ATS1 provides the federal courts with jurisdiction to hear non-U.S. plaintiffs’ claims related to a violation of the “law of nations or a treaty of the United States.”2 Historically, the ATS was rarely invoked until the U.S. Court of Appeals for the Second Circuit breathed life into it with Filartiga v. Pena-Irala3 in 1980. In the last 15 years, plaintiffs’ attorneys and human rights organizations have increasingly employed the ATS against corporate defendants, often charging them with aiding and abetting foreign governments and quasi-governmental entities in carrying out wrongful acts against the citizens of their own countries. These cases have been of obvious concern to corporations because successful plaintiffs in ATS claims have been awarded multi-million dollar verdicts, which are the result of a substantial punitive component to the damages.4
The question of whether corporations could be subject to liability under the ATS was an open one for decades. In 2010, inKiobel v. Royal Dutch Petroleum,5 the Second Circuit answered that question by holding that the ATS does not afford subject-matter jurisdiction over claims brought against corporations. The Supreme Court granted certiorari in Kiobel but did not ultimately decide the issue of corporate liability. Although the Supreme Court unanimously affirmed the Second Circuit’s dismissal, the justices did not agree on why the plaintiffs’ case should be dismissed. The reason given in the opinion of the court was that the presumption against extraterritorial application of a federal law applies to the ATS and that the plaintiffs had not overcome this presumption.
While Kiobel was making its way through the courts, so was another ATS case, In Re South African Apartheid Litigation.6 In 2009, the defendants in the Apartheid litigation had sought a writ of mandamus of a decision of Judge Shira Scheindlin allowing the ATS claims to go forward. Two days after the Supreme Court’s ruling, the Second Circuit denied defendants’ writ request and remanded the case to the district court, stating that because “[t]he opinion of the Supreme Court in Kiobel [II] plainly bar[red] common-law suits like this one, alleging violations of customary international law based solely on conduct occurring abroad,…defendants will be able to obtain…dismissal of all claims…through a motion for judgment on the pleadings.” The panel also reaffirmed its position that the law of the Second Circuit is that corporations may not be held liable under the ATS.
Surprisingly, Scheindlin did not dismiss the case. Rather, she concluded that the Second Circuit’s original decision holding that there is no corporate liability under the ATS was a “stark outlier” among appellate court decisions and superseded by the Supreme Court’s decisions in Kiobel and by other Second Circuit panel decisions. She explained her reasoning as follows:
[T]he Supreme Court has now written two opinions contemplating that certain factors in combination with corporate presence could overcome the presumption against extraterritoriality or permit a court to exercise personal jurisdiction over a foreign corporation in an ATS case. This language makes no sense if a corporation is immune from ATS suits as a matter of law.
The case will, in all likelihood, find its way back to the Second Circuit but, regardless of how the court decides the issue, other courts might agree with Scheindlin, meaning that the issue of corporate liability under the ATS may yet have to be decided by the Supreme Court.
As we have explained in other articles we have written about the FSIA,7 the statute replaced an executive-driven, factor-intensive, loosely common-law-based immunity regime with a comprehensive statutory framework for resolving any claim of sovereign immunity. The FSIA starts with the presumption that a foreign sovereign is immune from suit unless there is a statutory exception to immunity. In Republic of Argentina v. NML Capital,8 the Supreme Court recently had the opportunity to address the issue of immunity in the context of post-judgment discovery.
After Argentina defaulted on its external debt, NML, one of Argentina’s bondholders, prevailed in 11 debt-collection actions that it brought against Argentina in the Southern District of New York. In 2010, in order to locate Argentina’s assets and accounts, learn how Argentina moves its assets through New York and around the world, and accurately identify the places and times when those assets might be subject to attachment and execution in the United States or elsewhere, NML served subpoenas on two non-party banks, Bank of America and Banco de la Nación Argentina.
The district court granted NML’s motions to compel compliance with the subpoenas and stated that it would serve as a “clearinghouse for information” in NML’s efforts to find and attach Argentina’s assets. The Second Circuit affirmed.
Likewise did the Supreme Court. As the court explained, the FSIA confers on foreign states two kinds of immunity. The first, jurisdictional immunity, was waived in the bonds themselves. The second, execution immunity, generally shields property in the United States of a foreign state from attachment, arrest and execution. The FSIA does not, the Supreme Court noted, contain a third provision forbidding or limiting discovery in aid of execution of a foreign-sovereign judgment debtor’s assets.
Argentina argued that discovery of assets that do not fall within an exception under the FSIA to execution immunity­—plainly true of a foreign state’s extraterritorial assets—is forbidden. Put another way, if a judgment creditor may not ultimately execute a judgment against certain property, then it has no right to pursue discovery of information pertaining to that property. The Supreme Court rejected the argument for the simple reason that there was a need for the subpoenas because NML did not yet know what property Argentina has and where it is, let alone whether it is executable under the relevant jurisdiction’s law. Accordingly, the discovery relating to Argentina’s assets was permitted.
In one of our columns in 20139 we looked at the issue of whether, if an arbitration award is annulled in the courts of the country where the arbitration took place, it can nevertheless be enforced by the courts of another country. We reported that, according to a survey done by the International Chamber of Commerce, in a majority of the responding countries, a party may not, under any circumstances, obtain recognition or enforcement of a foreign award that has been set aside by the competent authority. The United States, France and the Netherlands stand apart, however, as countries where the courts have enforced awards notwithstanding their having been annulled by the courts in the competent authority. A recent case in the Southern District of New York involved an interesting twist on this issue.10
The case, Thai-Lao Lignite (Thailand) Co. v. Lao People’s Democratic Republic, concerned a dispute arising out of a project development agreement (PDA) under which the parties agreed disputes between them would be resolved in arbitration in Malaysia. When a dispute arose and an arbitration was commenced by Thai-Lao Lignite (TLL) and a related company, HLL, Laos argued that neither had standing to bring their claims. The arbitral panel concluded that both had standing because TLL was a signatory to the PDA, and HLL was an “intended beneficiary” of the PDA. The arbitration resulted in a $57 million award against Laos. That award was confirmed by the district court. But then came the twist.
After the award was confirmed in the United States, the Malaysian High Court set it aside, finding that the arbitrators had exceeded the jurisdiction granted to them by the PDA by (1) assuming jurisdiction over disputes concerning two contracts the parties had entered into before the PDA was created, and (2) admitting and adjudicating claims by a non-party to the PDA. On the basis of this decision in Malaysia, Laos requested that the district court in the United States vacate its earlier confirmation of the award.
A key in the cases in which this issue has been litigated is that Article V of the New York Convention provides that “recognition and execution of [an arbitral award] may be refused” if the award has been nullified at the place of arbitration; that is, refusal to confirm is discretionary, not mandatory (emphasis added). It was this discretion that Judge Alvin Hellerstein employed in his recent decision in which he confirmed an award that had been vacated at the place of arbitration.11
In our article, we suggested that it would probably be wrong to view Hellerstein’s decision as opening the gates wide to the enforcement of awards already annulled. But would that same standard even apply to an award that had not yet been set aside at the time it was confirmed in the United States? The Thai-Lao Lignite decision held that the same standard applies and supported the suggestion we had offered about Hellerstein’s decision.
The court held that the discretion to enforce a foreign arbitral award where the award has been nullified by a court in the state where the award was issued is narrowly confined. That discretion may be exercised only when the foreign judgment setting aside the award is “repugnant to fundamental notions of what is decent and just in the State where enforcement is sought,” or violates “basic notions of justice.” This “standard is high and infrequently met” and should be found “[o]nly in clearcut cases.” The court held that there was no such showing in the case before it and vacated the award.
Finally, we touch briefly on the subject of the use of the principle of “manifest disregard of the law” as a basis for refusing to enforce arbitral awards by reporting that this area of law continues to be a land of considerable confusion. We addressed this topic most recently last year,12 where we pointed out that, although numerous commentators had opined that the Supreme Court’s decision in Hall Street Associates v. Mattel13 would lead to the death of the manifest disregard doctrine, this had not happened (at least not in some courts).
In a recent certiorari petition to the Supreme Court, petitioners requested that the court resolve multiple circuit splits on this issue, both as to whether manifest disregard is still viable, and, if so, how it should be applied.14 According to the petition, the courts have taken four separate positions: (i) holding that manifest disregard is no longer a valid ground for challenging an award, (ii) treating it as a “judicial gloss” on Federal Arbitration Act (FAA) Section 10(a)(4), with the pre-Hall Street standard still applying, (iii) ruling that the common law manifest disregard standard remains an independent, non-statutory ground for vacatur after Hall Street, and (iv) refusing to take a position regarding the continued viability of manifest disregard in the absence of clear guidance from the Supreme Court.
The certiorari petition laid out a compelling case for the Supreme Court to restore the uniformity in arbitration law that Congress intended to create when it enacted the FAA. Nevertheless, on June 23, 2014, the Supreme Court denied the petition. It seems obvious that the disarray reflected in the contradictory holdings and inconsistent rationales of the various circuit courts of appeals can only be resolved by a ruling from the Supreme Court. For reasons known only to the justices of that court, confusion will continue to reign, at least for the foreseeable future.
1. 28 U.S.C. §1350.
2. Earlier articles by the authors on this subject were published in their column in the New York Law Journal on Jan. 2, 2003, Sept. 10, 2004, and Jan. 26, 2011.
3. Filartiga v. Pe??a-Irala, 630 F.2d 876 (2d Cir. 1980).
4. See e.g., Arce v. Garcia, 434 F.3d 1254, 1256 (11th Cir. 2006) (awarding three Salvadoran plaintiffs $54 million in compensatory and punitive damages).
5. Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010), aff’d 569 U.S. 12 (2013).
6. 02-MD-1499 (SAS).
7. For example, “Enforcing Arbitral Awards Against Sovereigns,” New York Law Journal, July 26, 2007.
8. Case No. 12-842 (Decided June 16, 2014).
9. “Enforcing Arbitral Awards That Have Previously Been Annulled,” New York Law Journal, Nov. 20, 2013.
10. Thai-Lao Lignite (Thailand) Co. v. Lao People’s Democratic Republic, No. 10-cv-5256 (S.D.N.Y. Feb. 6, 2014).
11. COMMISA v. Pemex-Exploracion Oracion Y Produccion, Case 10-cv-00206-AKH (Aug. 27, 2013).
12. “‘Manifest Disregard’ and International Arbitration Awards,” New York Law Journal, Jan. 24, 2013.
13. 552 U. S. 576 (2008).
14. Petition for Writ of Certiorari, Schafer v. Multiband, No. 13-1263 (April 16, 2014).