05.28Lack of Personal Jurisdiction Under the US Constitution in Award Confirmation Cases: Is It Time for a New Approach?
Access to US courts to enforce foreign arbitration awards covered by the New York Convention against State-owned companies is increasingly fraught with uncertainty rooted in American procedural doctrine. This difficulty was on display in the Second Circuit’s forum non conveniens decision in December 2011, dismissing an award confirmation action against the Government of Peru. The issue arose again last week, when the federal court of appeals in Washington, D.C., affirmed the dismissal, for lack of personal jurisdiction, of an award confirmation case under the New York Convention against a company wholly-owned by the Government of Liberia. (GSS Group, Ltd. v. National Port Authority, 2012 WL 1889384 (D.C. Cir. May 25, 2012)).
For non-US readers, a brief refresher discussion is in order. In US courts there must be jurisdiction of the subject matter and over the “person” of the defendant. In a New York Convention award confirmation case against a foreign State or its “agencies or instrumentalities,” Chapter Two of the Federal Arbitration Act (FAA) in tandem with the Foreign Sovereign Immunities Act (FSIA) provides subject matter jurisdiction and the FSIA provides statutory personal jurisdiction if the defendant is properly served with process. But ultimately personal jurisdiction in US courts depends on limits fixed by the “due process clause” of the US Constitution — more precisely by the jurisprudence of Constitutional due process in regard to the federal judicial power – provided that the defendant, despite its foreign domicile, has standing to invoke rights under the US Constitution.
On this matter of US Constitutional standing, the issue can become complicated — as it did in this Liberian Port Authority case. A corporation wholly-owned by a foreign State, as the Liberian Port Authority was, is treated as the State under the FSIA, and so the statutory basis for personal jurisdiction is present. But under the Constitution, a foreign State has no rights — its relationship with the US being a function of international law and diplomacy — while that State’s wholly-owned company does have such rights, being regarded as a private entity unless the foreign State exercises such thorough control that the company’s separate status is a fiction.
The petitioner/appellant in the Liberian Port Authority case was an Israeli construction firm (B.V.I. incorporated) that had contracted to build and operate a container port in Liberia. It won award of $45 million in a London arbitration, and brought the award to the US for confirmation, evidently without knowing if any assets of the award debtor might be found here. But petitioner made a costly tactical error in the district court proceedings, failing to request discovery relating to the Liberian Port Authority’s objection to personal jurisdiction. Petitioner thus deprived itself of the opportunity to show that the Port Authority was the alter ego of the Government of Liberia, a position that was effectively its only avenue to success on the jurisdiction point absent a change in the Court’s jurisprudence.
As to the latter, Petitioner did argue in the appellate court, the D.C. Circuit, that any “due process” to which the Port Authority was entitled under the Constitution was satisfied by the procedural requirements of the FAA and FSIA. But Petitioner had not developed that argument in the district court, so the D.C. Circuit was not willing to hear it.
Perhaps in the near future we will see such an argument presented in a timely and effective fashion. The due process requirement, developed in case law, that a foreign defendant must have “minimum contacts” with the United States in order for a lawsuit naming it as a defendant to be allowed to proceed, is premised on the notion that the federal judicial power is an element of sovereign power of the United States and that such power should not be asserted against non-citizens whose contacts with the United States are so negligible that they have not derived any benefit or protection from the US legal system. But the losing party to an arbitration that takes place, by agreement, in the territory of a Contracting State of the New York Convention is not quite as much of a stranger to the US legal system as the ordinary foreign defendant who is haled into a federal court. By agreeing to arbitrate in a Convention nation, the party secured the right, in case it would be the winning side in an arbitration, to invoke US law to have the award confirmed as a US judgment against the counterparty. And if the counterparty had property in any of the states or territories of the US, another US law benefit of arbitrating in a Convention country is the right to have US federal and state law enforcement authorities come to its assistance with coercive power to obtain execution. It might be argued that deriving benefit from the US legal system in this fashion is not “purposeful” to the same degree as, for example, situating a sales office in New York. But it might well be a question of fact in a future case whether the US law benefits of an agreement to arbitrate in a Convention country were sufficiently well understood by the award debtor that the arbitration agreement itself may be considered adequate minimum contact with the US for purposes of an award confirmation case.
Further, this approach to personal jurisdiction in an award confirmation case can be justified on the basis that the exercise of US sovereign power over the defendant is rather minimal, as there is no merits adjudication or substantive review of the award. Confirmation of the award by a US court has little consequence within the US if the award debtor has no US assets. And the award debtor who wishes to challenge the award may elect to file a set aside action in a court at the seat of the arbitration and ask the US court to defer confirmation action until that proceeding is concluded.
The US Constitutional limitation on personal jurisdiction is a significant restriction of US participation in the international law regime of the New York Convention. The time may be at hand for US courts to consider whether the “minimum contacts” requirement should be applied differently to award confirmation cases than to ordinary civil litigation.