Marc J. Goldstein Arbitrator & Mediator NYC
April 22, 2013

Forum Non After Figueiredo: A Pragmatic Approach May Avoid the Difficulty

Evidently undaunted by the Second Circuit’s dismissal of an award confirmation case on grounds of forum non conveniens (Figueiredo Ferraz E Engharia de Projeta Ltda. v. Republic of Peru, 665 F.3d 384 (2d Cir. 2011)) — or at least convinced of the Figueiredo panel majority’s idiosyncratic take on the “public interest” factor in forum non analysis — a federal district judge in New York recently denied a forum non conveniens motion to dismiss a confirmation action between Antiguan parties on both sides, arising from an arbitration that took place in Puerto Rico. (Leeward Constr.  Co. v. American Univ. of Antigua,  2013 WL 1245549 (S.D.N.Y. Mar. 26, 2013)).

But what may be most significant to award confirmation jurisprudence in the Leeward case is that the Court granted the motion to dismiss the confirmation petition, without prejudice, made by a non-party to the arbitration, and non-signatory to the arbitration agreement, against whom confirmation was sought via piercing of the corporate veil. Citing a Second Circuit decision from 1963 — predating the US accession to the New York Convention — the Court held that an award confirmation action against the award debtor is not the proper time to raise, for the first time, whether a putative alter ego of the award debtor is also legally responsible to satisfy the award. The Court then hastened to add that the award creditor was free to bring a “separate plenary action” to enforce the award against the putative alter ego.

The Court did not refer to any of the grounds for refusal of recognition in Article V of the New York Convention as a basis for this decision. But if Judge Kaplan considered (as he presumably did) that no such ground was needed, he would appear to have been fully justified. This decision should be classified not as a refusal to recognize the award, but as only a docket-management decision reflecting the application of a sound procedural principle: if confirmation depends upon an initial determination that the defendant consented to arbitrate and did indeed participate in the arbitration (because, as a matter of law, it is one entity with the nominal award debtor), that issue must be litigated in a separate case. The pro-arbitration logic of such a principle is that confirmation proceedings are intended to be “summary,” which is to say resolvable quickly by motion practice without discovery or trial, while issues of consent to arbitrate (such as veil piercing) may well require discovery and trial and therefore should be handled separately. It would seem that such a rule is a “rule of procedure” within the meaning of New York Convention Article III which requires that awards be recognized and enforced “in accordance with the rules of procedure of the territory where the award is relied upon.”

Aficionados of Figueiredo and its main antecedent, the Monde Re case (In the Matter of Arbitration between Monegasque de Reassurances S.A.M.(Monde Re) v. NAK Naftogaz of Ukraine, 311 F.3d 488 (2d Cir. 2002)), will see the close parallel between the Leeward case and Monde Re — where, in the confirmation action,  the award creditor sought conformation against the Republic of Ukraine as alleged alter ego of the award state agency Naftogaz. The solution endorsed by the Second Circuit in Monde Re was to dismiss the entire confirmation action on forum non grounds because the law and fact questions raised by the alter ego claim were better suited to resolution in a court in the Ukraine.

Perhaps the Second Circuit will soon have occasion to endorse Judge Kaplan’s approach in Leeward, which should render Monde Re if not overruled then at least recognized as less helpful solution to the tensions injected into confirmation cases when they are brought against defendants who were not participants in the arbitration.

What then should a court do when, in a separate “plenary action” like the one invited by Judge Kaplan, against only the non-signatory/non-party/alleged alter ego, forum non conveniens is raised as a basis to ship the case abroad? Here it may be useful to view the “plenary action” as a hybrid. It is in its main part an action to recognize an agreement to arbitrate, and as such is governed by Article II of the New York Convention. Article II commands that Contracting States “shall recognize” an arbitration agreement, and lacks the “rules of procedure” language of Article III that the Second Circuit relied upon in Monde Re and Figueiredo to apply forum non conveniens.  It seems correct therefore to suppose that the Court has a categorical duty under the Convention, as a treaty of the United States, to decide whether the non-party is bound by the arbitration agreement even if this involves issues of foreign law, depends on evidence located abroad, and perhaps even implicates issues of public policy of the foreign State.

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