Perhaps you represent a U.S. company that is entering into a contract with an overseas entity, or vice versa. You are contemplating whether the contract should provide for arbitration or litigation in the event of a dispute. In deciding that question, you may ask: if your client wins in the proceeding against the other party, is it easier to enforce a non-U.S. court judgment or a non-U.S. arbitration award in the United States?
As it turns out, each scenario presents unique challenges. There is no uniform U.S. law governing the recognition of non-U.S. judgments, but rather a patchwork of varying state laws, which can make recognition more complicated. Confirmation of non-U.S. arbitration awards, on the other hand, is governed by a single, uniform federal statute in the United States. Even so, U.S. proceedings to confirm an arbitration award have to be made on a shorter timetable than proceedings to recognize a non-U.S. judgment, and confirmation of arbitration awards can raise other, complicated issues.
Dispute resolution provisions in contracts are often treated as “boilerplate,” but the choice between arbitration and litigation can be an important one. Lawyers drafting contracts involving both U.S. and non-U.S. parties should think carefully about the differences between enforcing judgments and arbitration awards in the United States to decide whether court or arbitration proceedings are the right choice for their clients.
Enforcing Non-U.S. Judgments in the United States
In the United States, enforcing a judgment from a non-U.S. court can be tricky. The United States signed the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters in March 2022, but it has yet to ratify it or pass any legislation implementing the Hague Convention. Nor is there any uniform law at the federal level addressing the recognition and enforcement of foreign judgments. Instead, recognition and enforcement of foreign judgments are matters of state law or court-developed common law. As one court put it, “[n]o federal law in the absence of a treaty or federal statute governs the recognition or execution of foreign country judgments in the United States. Thus, the recognition of such judgments is governed by applicable state law…even when that recognition is sought in federal court.”[1]
A total of 38 of the 50 U.S. states have enacted either the 1962 Uniform Foreign Money Judgments Recognition Act or the 2005 Uniform Foreign-Country Money Judgments Recognition Act.[2] Nine of those states utilize the older, 1962 Uniform Act: Massachusetts, Connecticut, New Jersey, Pennsylvania, Maryland, Ohio, Missouri, Florida, and Alaska.[3] 29 states, plus the District of Columbia, have enacted the more recent 2005 Uniform Act, including New York, California, Texas, and Delaware.[4] The remaining 12 states have their own statutory schemes or rely upon court-made common law, as articulated by the U.S. Supreme Court or outlined in either the Restatement (Second) of Conflicts of Law or the Restatement (Third) of the Foreign Relations Law of the U.S.
As a result, there are significant differences from state-to-state. There is even some variation among states that have ostensibly enacted the same Uniform Acts, including different deadlines for bringing an action to recognize and enforce a non-U.S. judgment. In general, however, U.S. courts will recognize and enforce non-U.S. judgments unless, among other things: (1) the defendant in the foreign proceeding did not receive notice in sufficient time for it to defend the proceeding or the foreign court otherwise lacked jurisdiction over the defendant; (2) the judgment was obtained by fraud; (3) the underlying cause of action on which the judgment is based is “repugnant” to public policy; (4) the judgment conflicts with another final, conclusive judgment; (5) an agreement of the parties provided for their dispute to be resolved by other means; or (6) the foreign tribunal was not impartial.[5] U.S. courts in all states prohibit attempts to re-litigate the issues decided in the non-U.S. proceeding, and limit their refusal to recognize a non-U.S. judgment on the grounds listed above or other grounds articulated by the statutes or courts of a particular state. Assuming those grounds are not present, however, U.S. courts will recognize and enforce the non-U.S. judgment.
If the United States ever ratifies and implements the Hague Convention, there will likely be greater uniformity when it comes to recognizing and enforcing non-U.S. judgments. Until then, however, the patchwork of law in the United States can make recognition and enforcement somewhat complicated.
Enforcing Non-U.S. Arbitration Awards
The recognition of overseas arbitration awards are governed by a treaty, the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention. Unlike the Hague Convention relating to overseas court judgments, the United States ratified the New York Convention in 1970 and enacted statutory provisions to implement that treaty in the Federal Arbitration Act (“FAA”). The relevant provisions of the FAA govern arbitrations that are “commercial” in nature, such as those involving “a transaction, contract, or agreement,” and arbitrations that do not involve only U.S. citizens, unless the U.S. citizens-only arbitration relates to “property located abroad,” “performance or enforcement abroad,” or “has some other reasonable relation with one or more foreign states.”[6] Federal courts have jurisdiction over proceedings to recognize and confirm such awards regardless of the amount at stake.[7]
The FAA provides that, as long as a proceeding to confirm an arbitration award is brought within three years after the award is made, the federal court can confirm the award “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the [New York] Convention.”[8] Those grounds include, among other things, whether one of the parties to the arbitration was “under some incapacity” when it signed the agreement; the party did not receive proper notice of the arbitration; the arbitrators exceeded their jurisdiction; the arbitral panel was not composed in accordance with the relevant agreement; or the award is contrary to public policy.[9]
Thus, a party with a non-U.S. arbitration award can avoid the patchwork of U.S. state laws on the recognition of non-U.S. judgments, and instead get the benefit of the New York Convention and FAA. The FAA has some drawbacks, however, including that the three-year deadline for filing a proceeding under the New York Convention is much shorter than the deadline for seeking to recognize a non-U.S. judgment, which typically ranges from 10 to 20 years.
Other wrinkles may arise in connection with the confirmation of non-U.S. arbitration awards. In one interesting case, the U.S. Second Circuit Court of Appeals confronted a situation in which the plaintiff had an arbitration award rendered in Malaysia confirmed by two courts: one in New York and, subsequently, one in the U.K., which based its confirmation order in large part on the New York confirmation order. After the award was confirmed by the U.K. court, the plaintiff sought recognition of that U.K. judgment in New York. Before the New York court ruled on that request, however, a Malaysian court set aside the arbitration award. The New York court then vacated its earlier decision confirming the arbitration award and refused to recognize the U.K. judgment. The Second Circuit affirmed.[10] The Second Circuit held that the lower court was entitled to consider the Malaysian judgment setting aside the arbitration award, since the Malaysian court was the court of primary jurisdiction.[11] The Second Circuit then held that the lower court was justified in declining to recognize the U.K. judgment, in part because “equity favors giving heavier weight to the Malaysian judgment—the decision of the primary jurisdiction—over the English,” especially since that U.K. judgment was premised on a New York confirmation order that was now vacated.[12]
In short, there are upsides to the FAA, but you have to act relatively quickly (within three years) and the award may be vulnerable to vacatur in a non-U.S. jurisdiction, which could undermine the U.S. judgment or even another non-U.S. judgment confirming that award.
Conclusion
The recognition and enforcement of non-U.S. judgments in the United States is a complex matter due to state-by-state variation. Confirmation of non-U.S. arbitration awards has the benefit of uniform law, but the deadline to file a confirmation proceeding is significantly shorter and things may get complicated when a non-U.S. court is considering whether to vacate the award. Parties drafting contracts should weigh the choice between resolving disputes through litigation or arbitration carefully, accounting for any unique factual circumstances that might make recognition or confirmation even more complex.
[1] Societe dAmenagement et de Gestion de lAbri Nautique v. Marine Travelift, Inc., 324 F. Supp. 3d 1004, 1008 (E.D. Wisc. 2018).
[2] The states that have not enacted either the 1962 Uniform Act or the 2005 Uniform Act are New Hampshire, Vermont, Wisconsin, South Dakota, Wyoming, Kansas, Kentucky, West Virginia, South Carolina, Mississippi, and Arkansas, and Louisiana. https://www.uniformlaws.org/committees/community-home?communitykey=ae280c30-094a-4d8f-b722-8dcd614a8f3e.
[3] See id.
[4] See id.
[5] See, e.g., 42 Pa.C.S. § 22004; 10 Del. C. § 4803; N.Y. CPLR 5304; Tex. Civ. Prac. & Rem. Code § 36A.004; Hilton v. Guyot, 159 U.S. 113, 166-69 (1895).
[6] 9 U.S.C. § 202.
[7] Id. § 203.
[8] Id. § 207.
[9] New York Convention, Article V, https://www.newyorkconvention.org/english.
[10] Thai-Lao Lignite (Thailand) Co. v. Gov’t of the Lao People’s Democratic Republic, 864 F.3d 172 (2d. Cir. 2017).
[11] Id. at 182-89.
[12] Id. at 190-91.
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