Arbitral tribunals are in the habit of thinking seriously about how their handling of the case affects the “enforceability” of their Awards. But we mainly think of “enforceability” as the potential for confirmation under the New York or Panama Convention, and/or applicable domestic arbitration law, and potential vacatur in a court at the arbitral seat. We give less attention to true “enforcement” – the forced compliance of the losing party with a Judgment confirming an Award. When the Award simply orders payment of money, or declares ownership of property, the laws and mechanisms of execution come into play. But if the Award regulates the conduct of the losing party, as by specific performance or an injunction, the merger of an Award into a Judgment brings into play the court’s powers to coerce compliance with its Judgments by imposing contempt sanctions.
If a losing party in such a case is determined to fight on, not only after an adverse Award but beyond the judicial confirmation of the Award, the contempt scenario may arise. Arbitrators who sense they are in a “fight to the finish” type of case are well advised to understand how the applicable law of contempt may have an impact. What follows is a brief sketch and discussion of some relevant aspects of the contempt law landscape affecting arbitration Awards in US federal courts.
- Before a contempt sanction may be imposed, it must be shown by the applicant that the conduct required by the judgment or order was clear and unambiguous, leaving no doubt of what the prospective contemnor was required to do. That means our Awards, especially those that entail a remedy of specific performance or an injunction (whether mandatory or prohibitory) should state with precision the conduct that is required or forbidden. This guidance is seemingly straightforward. But if the Tribunal anticipates that non-compliance, at any cost, may be the objective of the losing party, arguments that could be raised before the enforcing court that the Award (as converted to a Judgment by recognition) lacks a clear conduct mandate ought to be anticipated in the Award drafting. To take a recent example, a US federal court denied a contempt sanction where the alleged non-compliance with the Award/Judgment was the refusal to grant the applicant two appointees to a corporate board of directors. The stumbling block for the applicant was that the Award/Judgment, while it recognized the ongoing validity of the agreement that provided the right to have two seats on the board, did not direct specifically that the losing party should implement the applicant’s board nominations.
- Tribunals may find it useful to know that non-compliance with a Judgment confirming an arbitral award may be addressed by contempt sanction in a US distric court even while an appeal of the Judgement is pending – absent a stay from the Judgment-rendering court or the appellate court. (This is the general rule as to any Judgment, not a special attribute of award-confirmations). So while it may be anticipated that the well-resourced and determined losing party may litigate over recognition of the Award all the way to a denial or grant of review in the US Supreme Court, a process that might consume several years, the coercive force of a contempt sanction may be sought (barring a stay) once the Judgment has been entered and after the passage of any deadline for compliance fixed by the Award/Judgment. It is regrettable, but a fact, that coercion is a factor Tribunals must sometimes take into account. It may bear on the Tribunal’s effective ability to regulate party and/or counsel conduct in an ongoing arbitration. It may well bear on the efficacy of the entire arbitral process, if a party determined to pay any price for victory decides to marginalize the arbitration into but one of many battlefronts in a multiple-forum war.
- US federal law permits coercive incarceration as a civil contempt sanction, upon the theory that the contemnor goes behind bars while holding the keys to her release: compliance with the Judgment turns the latch. And the coercive effect of such a sanction may have international commercial dimensions that begin before any actual arrest and lockup. The prototype may be the non-US controlling person of a foreign business entity, who may travel to the United States regularly to carry on business and may also have one or more US places of residence for herself and her family. For that person, the coercive effect of incarceration as a civil contempt sanction may begin with the Court’s order to notify US Customs and Border Protection to detain the contemnor upon her attempt to enter the US for any purpose. Judges may naturally prefer to test the efficacy of monetary civil contempt sanctions before ordering incarceration, but upon a proper record concerning a contemnor’s conduct, business practices and obduracy, a confinement order as a contempt sanction for non-compliance with a judicially-confirmed Award may be obtainable.
- Not to be overlooked in this survey is that the companion category of civil contempt sanctions, alongside the “coercive,” is the “compensatory.” The legal costs incurred by the successful civil contempt sanctions applicant, or other out-of-pocket costs resulting from the non-compliance, are comfortably within this category. But there could be more complicated scenarios. Suppose the judicially-confirmed Award directed specific performance of a contractual obligation. If coercive sanctions prove unfruitful, may the applicant obtain in a compensatory civil contempt judgment a sum of money to be substituted for the unattainable specific performance? Does the question of damages as an alternative remedy for the contract breach remain arbitrable? Or does the judicial confirmation of a conduct-regulating Award transform what would be, in other circumstances, a squarely arbitrable issue of breach of contract damages, into a matter of Judgment enforcement that is exclusively in the judicial realm? Or are both solutions possible, with the claimant/applicant having the option to pursue one or the other? I did not happen upon an answer in the reading that supported this post. But this is an issue that some court or Tribunal may well have faced, or may have to face, as more arbitral awards involving conduct-based rather than monetary relief are resisted by the losing side not only in confirmation/vacatur litigation but beyond that in contested contempt sanction proceedings.
[The cases informing this post include: Smagin v. Yegiazaryan, 2023 WL 4002730 (C.D. Cal May 22, 2023); Micula v. Gov’t of Romania, 2023 WL 2127741 (D.C. Cir. Feb. 21, 2023); Absolute Nevada, LLC v. Grand Majestic Riverboat Co., 2022 WL 17156624 (S.D.N.Y. Nov. 22, 2022); Inversiones Y Procesadora Tropical Inprotsa, S.A., 2021 WL 3508370 (S.D. Fla. Aug. 19, 2021); Telenor Mobile Communications AS v. Storm LLC, 587 F.Supp.2d 594 (S.D.N.Y. 2008), aff’d 351 Fed.Appx. 467 (2d Cir. 2009); CE Int’l Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, 2013 WL 324061 (S.D.N.Y. Jan. 23, 2013).]