Marc J. Goldstein Arbitrator & Mediator NYC
February 10, 2017

Pursuing Alter Egos of the Convention Award Debtor

After the decision of the US Second Circuit Court of Appeals in the Gusa case (CBF Industria De Gusa S/A v. AMCI Holdings, Inc., 846 F.3d 35, 2017 WL 191944 (2d Cir. Jan. 18, 2017)), there is much to know about enforcing foreign arbitral awards against alter egos of award debtors that we did not know before. Most importantly, it would appear that the award debtor, named in the award, need not be named as a Respondent in the award confirmation case under FAA Section 207. If Gusa were limited to its facts, that might only be the case where that award debtor is legally defunct, such that it has lost its capacity to be sued in the courts of the United States. But the Gusa panel does not state that its holding is limited to its facts, so Gusa apparently holds that the award enforcement proceeding under FAA Section 207 may be brought directly against alleged alter egos or successors in interest of the award debtor who were not parties to the arbitration. The Gusa panel adopts this position notwithstanding, and without addressing expressly, the fact that FAA Section 207 identifies, as the party against whom a foreign arbitral award that falls under the New York Convention may be confirmed, only “a party to the arbitration.”  This question is the topic of the Commentary here.

Gusa also furnishes guidance on how a Section 207 Convention award enforcement case against an alleged alter ego of the award debtor should proceed. The panel holds that whether the award should be enforced against the alleged alter egos is to be decided “under the standards set out in the New York Convention and Chapter 2 of the FAA.” In turn, this means that if the Section 207 Respondent denies alter ego status, this Respondent must persuade the district court that enforcement of the award should be refused under Article V(2)(a) of the Convention which permits such refusal where “the subject matter of the difference is not capable of settlement by arbitration under…” ”the law of … the country where recognition and enforcement is sought.” (Under Second Circuit precedent, per the Gusa panel, this is the Convention framework for a party to resist enforcement on the basis that it would not be treated as bound by the arbitration agreement under US arbitrability law). And when that arbitrability issue is addressed, Gusa instructs, the district court should consider whether the court or the arbitral tribunal should decide the arbitrability issues, using the analytical framework provided by First Options v. Kaplan. These issues may be topics for future Commentaries.

Prior Law in the Second Circuit on Extending the Obligation of Award Debtors to Alter Egos

The Second Circuit in a 1963 pre-New York Convention case (that is, prior to the US accession to the Convention) called Orion Shipping had held that a proceeding for confirmation of an arbitral award (in that case, brought under Section 9 of the FAA, as it involved an international award made in the US), had held that a confirmation action was not a proper occasion to seek the extend the binding effect of an arbitration award to an alleged alter ego of the award debtor. Because confirmation was intended to be a streamlined, summary proceeding, while issues of alter ego obligation were generally factually and legally complex and time consuming, the Orion Shipping court held, such claims should be presented in a separate action. The Orion panel held that “an action to confirm the arbitrator’s award [under 9 U.S.C. 9] cannot be employed as a substitute” for “a separate action against [the alleged alter ego] seeking to “enforce the award” that had been rendered against the award debtor. Evidently, but not explicitly, the Orion panel used the phrase “enforce the award” in the common law sense of extending its obligations to third parties.

Orion Shipping remained good law up to the Gusa decision, and at least in the context of award confirmation under FAA Chapter 1 Gusa does not overrule Orion. But according to the Gusa court “confirmation” under FAA Section 207 with respect to a Convention award made at a non-US seat of arbitration embraces “recognition and enforcement” under the New York Convention, and accordingly “enforcement” of such a foreign arbitral award against an alleged alter ego is properly sought under FAA Section 207. This appears however to be a significant departure from prior application of Orion Shipping to alter ego enforcement claims in the district courts. Whether asked to enforce against alter egos under FAA Section 9 with regard to a Convention award made in the US, or to enforce a foreign-made award under Section 207, the district courts had previously required a separate basis for subject matter jurisdiction of the claims against the alleged alter egos. And while the Second Circuit had carved out an exception to Orion Shipping where the enforcement against a non-party was based on successorship, not alter ego, because the complexity-of-adjudication rationale would not apply, no decision appears to have extended this exception to the alter ego enforcement context. The case law left rather murky the precise legal basis of alter ego liability. If the alter ego claims were allowed to be pursued as “a separate action” but in the same proceeding as the confirmation action, was this because a finding of alter ego would make the alter ego, in retrospect, a party to the arbitration, against whom the award could be confirmed? Or was it simply a case that the Judgment confirming the award against the award debtor, but not the award itself, would be determined to be binding upon the alter ego, in the same way that the Judgment would become binding if the alter ego claim were pursued in a separate action after entry of the confirmation Judgment? There was no practical reason to answer this question so long as the named award debtor was a party to the confirmation action. And where confirmation was sought of a US-seated Convention award under FAA Section 9, there was no “against a party to the arbitration” language in Section 9, as there is in FAA Section 207, to motivate a court to address whether there could be award confirmation against, as opposed to extension of the confirmation judgment to, an alter ego.

What Gusa Means for US Enforcement of Foreign New York Convention Awards

Gusa does not purport to overrule Orion Shipping, and one possible interpretation is that Gusa has simply created another category of exception to Orion: i.e. where only the purported alter egos and not the named award debtor are parties to the confirmation proceeding, there is no possibility to fulfill the FAA’s objective of a simple, streamlined confirmation proceeding, and therefore no statutory policy reason to require the award creditor to proceed against the alter egos in a separate action. But this is not the Court’s stated rationale.

The Gusa panel holds that the nub of the error made by the District Court was that, in requiring the award to be “confirmed” for New York Convention purposes (i.e. recognized and enforced) in some jurisdiction where the award debtor could be a party to the action, before it could be “enforced” in the United States against alleged alter egos, the District Court was mistakenly applying FAA Section 9’s more limited concept of “confirmation” to an FAA Section 207 proceeding, in which the statutory term “confirm” is a proxy for the Convention term “recognition and enforcement.”  But the Second Circuit does not hold that “enforcement” under the New York Convention includes the process of extending the binding effect of a Convention award to a non-party to the award. Indeed the panel cites the Restatement (Third) of the Law of International Commercial Arbitration for the proposition that the meaning of “enforcement” under the Convention is simply the conversion of the award into a judgment of the court in which recognition and enforcement are sought. Upon this definition of Convention “enforcement,” FAA Section 9 confirmation of a US-made Convention award, and FAA Section 207 confirmation of a foreign-made Convention award, are equally “enforcement.” To some readers at least, the Gusa panel’s effort to distinguish Section 9 and Section 207 confirmation will only make sense if the Section 207 confirmation more broadly includes one meaning of “enforcement” in the domestic common law sense, i.e. extension of the obligations of the award (or the judgment) to a non-party to the award on the basis of a legal relationship between the award debtor and the non-party. But since the panel proceeds from a correct definition of “enforcement” as a Convention term of art, one if left to wonder if this was what the panel intended.

An alternative way to reconcile Gusa with the text of Section 207 is to conclude that the language “against a party to the arbitration” in Section 207 does not necessarily require a named party to the arbitration to be the respondent in the confirmation action involving putative alter egos, but requires only well-pleaded allegations of alter ego status that, if proved, would result in a judgment that the alter ego was, de jure if not de facto, a party to the arbitration.  That is a plausible view, but it is not one the Gusa panel adopts; instead, the “against a party to the arbitration” language of Section 207 is not quoted or otherwise mentioned in the decision. Further, adoption of this view would seemingly have required a closer examination of Orion Shipping and its progeny, as it appears to have been a premise (albeit not very well explicated) of those cases that the extension of the binding effect of an award (or a judgment in a confirmation action) to a non-party is not an FAA-based cause of action at all, but rather a common law cause of action to extend to a non-signatory of the contract, based on legal status, an obligation of the contract that gave rise to the obligation.

If anything is clear from Gusa, it is that this extension process, at least in regard to a foreign-made Convention award, and at least in regard to putative alter egos of the award debtor, is henceforth to be governed by the Convention and FAA Chapter Two. How this result should be harmonized with prior case law will be left to future decisions – or, possibly, to refinement or change in the en banc proceeding for which application has been made by the respondents in the Gusa case.


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