Foreign Award Not Enforced In New York Under Forum Non Conveniens
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It is often believed that arbitral awards can be easily enforced in the U.S., especially in the Second Circuit. This allows plaintiffs to enforce awards in New York, where many entities have sizable assets. However, a 2011 by the Court of Appeals (the ¨Second Circuit¨) ruled against such enforcement, on the novel argument that the S.D.N.Y. was the improper forum to mount an enforcement action. Instead, the court ruled, the action for enforcement should be brought in Peru – the domicile of the defendant.
The court held that the forum non conveniens doctrine may serve as a basis to dismiss actions for the enforcement of foreign arbitral awards against U.S.-based assets of foreign parties. In Figueiredo Ferraz e Engenharia de Projeto v. Republic of Peru, 665 F.3d 384 (2011) (“Figueiredo”), the majority concluded that the doctrine of forum non conveniens barred federal courts from exercising jurisdiction over a petition to enforce a US$21 million Peruvian arbitration award against New York assets of the government of Peru. The Figueiredo decision has generated both strong interest and confusion among foreign lawyers – it is one of the cases we are most often asked about by Latin American lawyers – and merits a closer look.
The arbitration at the heart of this case involved a fee dispute over a consulting agreement between Figueiredo, a Brazilian company registered in Peru, and Programa Agua Para Todos (the “Program”), a Peruvian government agency, for Figueiredo’s provision of engineering studies on water and sewage systems in Peru. After a Peruvian tribunal rendered an award in favor of Figueiredo in 2005, the Peruvian Ministry of Housing, Construction and Sanitation unsuccessfully attempted to have the award vacated in Lima. Subsequently, the Program began to make payments to satisfy the award, although Figueiredo had not requested to confirm the award or to execute upon the judgment in Peru.
By 2008, the Program had only paid about six percent of the total award (approximately US$ 1.4 million), claiming, in defense, that a Peruvian statute prohibited it from making annual payments of more than three percent of its annual budget to satisfy a judgment or award. In response, Figueiredo sought to enforce the award against the Peruvian government’s bond assets in New York. The Peruvian government, in turn, moved to dismiss the action on the basis of forum non conveniens and international comity. Following the S.D.N.Y.’s refusal to dismiss Figueiredo’s enforcement action in 2009, Peru filed an interlocutory appeal to push for dismissal.
The Second Circuit’s Decision
On appeal, the Second Circuit court interpreted Article 4 of the Panama Convention as a discretionary standard allowing federal courts to consider procedural doctrines in deciding on petitions to confirm foreign arbitral awards. Relying on Monegasque de Reassurances v. NAK Naftogaz, 311 F.3d 488 (2d Cir. 2002) (“Monegasque”) — which held that actions to enforce New York Convention awards may be stayed or dismissed on the basis of forum non conveniens — the court found that enforcement actions under the Panama Convention are also subject to forum non conveniens considerations.
In Monegasque, the Second Circuit affirmed the S.D.N.Y.’s dismissal of a Monacan reinsurer’s petition to enforce an arbitral award made in Russia against Ukraine, finding that Article III of the New York Convention effectively permits contracting states to dismiss actions to enforce foreign arbitral awards on procedural grounds. Citing the Supreme Court in American Dredging v. Miller, 510 U.S. 443 (1994), the Second Circuit reiterated that forum non conveniens is a procedural doctrine in the U.S. and, as such, it may be used to decide on enforcement actions.
Adhering to Monegasque, the Second Circuit accepted forum non conveniens as a valid grounds for dismissing Figueiredo’s petition to confirm the award and proceeded to evaluate the lower court’s decision. The court found that the S.D.N.Y. had erred in its conclusions pertaining two of the forum non conveniens factors: the adequacy of the alternative forum, and the balance of public interests involved in the choice of forum. Based on Norex Petroleum v. Access Industries, 416 F.3d 146 (2d Cir. 2005), the court wrote that the appropriateness of an alternative forum in a suit to obtain a judgment and execute on a defendant’s assets hinges on whether the defendant has executable assets in the alternative forum. Stressing that an alternative forum is not inadequate simply because the plaintiff may recover less, the court disagreed with the S.D.N.Y.’s finding that New York was the more appropriate forum. Similarly, the court rejected the S.D.N.Y.’s evaluation of public interests favoring the resolution of Figueiredo’s action in a U.S. court vis-à-vis an alternative forum, finding that the Peruvian law that established a cap for government agencies’ payments towards judgments was the most critical public interest factor in the forum non conveniens inquiry and that such law weighed decisively in favor of dismissal.
Judge Lynch’s Dissent
The majority’s decision inspired a strong and detailed dissenting opinion from Judge Gerard E. Lynch, who argued that Monegasque was wrongly decided and, in any case, the unique facts in Monegasque are easily distinguishable from this case. Noting that the petitioner in Monegasque failed to show that the defendant had executable assets in New York and that neither the underlying contractual dispute, the parties nor the arbitration had any connection to New York, Judge Lynch stressed that Figueiredo had successfully demonstrated that the Peruvian government had executable assets in New York and, as a result, New York was an adequate forum. Most importantly, Judge Lynch warned that the application of forum non conveniens undermines the U.S.’s commitments under the New York and Panama Conventions, neither of which recognize this doctrine as a grounds for refusing to enforce a foreign arbitral award.
Epilogue: Don’t Panic (Yet)
Numerous legal scholars have echoed Judge Lynch’s rejection of the Figueiredo decision, arguing that the Second Circuit carved out an additional exception to the recognition and enforcement of arbitral awards, which will create uncertainty about executing foreign awards against the U.S.-based assets of foreign parties. But there’s no need for panic: in the three years since the Figueiredo decision was handed down, no defendant has successfully invoked its holding to dismiss an otherwise valid motion to confirm a foreign arbitral award. This failure to inspire new case-law (as opposed to law review articles) may be best explained by the fact that forum non conveniens is a discretionary doctrine. District courts that are unwilling to step into the fray can easily distinguish the facts of the Figueiredo case and ultimately have the discretion to reject a forum non conveniens defense. Even with this decision on the books, for the time being, New York courts remain a truly welcoming forum for enforcing foreign arbitral awards.
By Walsy Saez & Jennifer Cabrera
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