Enforcement of Judgments 2022

Last Updated August 02, 2022

USA

Trends and Developments


Authors



Debevoise & Plimpton LLP is a premier law firm with market-leading practices, a global perspective and strong New York roots. Deep partner commitment, industry expertise and a strategic approach enable the firm to bring clear commercial judgement to every matter. The firm draws on the strength of its culture and structure to deliver superior work to every client through true collaboration. Debevoise’s international dispute resolution group is a global leader that has racked up some of the largest awards in the world for its clients. Led by 15 partners spanning nine offices and supported by over 100 qualified attorneys, the firm recently handled over 120 matters worth in excess of USD65 billion. Lawyers in the practice handle diverse matters, including international commercial and treaty arbitration, public international law and complex commercial litigation. The firm’s team has a deep commitment to the advancement of international arbitration through leadership, scholarship and innovation.

This section discusses several notable developments relating to the recognition and enforcement of foreign judgments and awards in the United States, including recent trends under state and federal law, sovereign immunity issues and post-judgment or post-award interest.

Recent Trends in Enforcement of Foreign Judgments Under State and Federal Law

In the United States, the enforcement of judgments is primarily the subject of state, as opposed to federal, law. Federal courts also apply state law when recognising and enforcing judgments where their jurisdiction is based on the diversity of citizenship of the parties. They will generally also apply state law to claims for recognition and enforcement where their jurisdiction is based on the existence of a federal question such as foreign sovereign immunity.

Despite the primacy of state law in this area, the Uniform Law Commission’s Uniform Foreign-Country Money Judgments Recognition Act provides some uniformity concerning the recognition and enforcement of judgments. While many states have long adopted the 1962 version of this Act (the “1962 Act”), states have increasingly adopted the most recent version issued in 2005 (the “2005 Act”). These Acts only apply to the recognition of foreign money judgments.

New York recently adopted the 2005 Act. Notably, the 2005 Act adds two new discretionary grounds for declining recognition, namely, where there is “substantial doubt about the integrity of the rendering court with respect to the foreign-country judgment”, and where the “specific proceeding in the foreign court leading to the judgment was not compatible with the requirements of due process of law”. See the 2005 Act Section 4. The latter ground departs from the 1962 Act, which required the party resisting recognition to show the incompatibility of a foreign “judicial system”, as opposed to a “specific proceeding”, with due process.

At the federal level, the United States has signed, but not yet ratified, two important treaties that aim to create harmonised rules to enforce foreign judgments and international settlement agreements. The Hague Judgments Convention, which was signed in March 2022, would apply to both civil and commercial judgments and not merely foreign money judgments. The Singapore Mediation Convention, which was signed in August 2019, would provide a framework for enforcing settlement agreements, which are currently governed by state contract law. However, as the United States has yet to ratify these treaties, their impact remains unclear.

Enforcing Judgments Against Foreign Sovereigns

In the United States, the Foreign Sovereign Immunities Act (FSIA) renders foreign sovereigns immune from suit in federal or state courts in the absence of an applicable exception. Foreign sovereigns facing suits in state courts may seek to remove the case against them to federal court on the basis of this statute. 

The FSIA further provides foreign sovereigns with presumptive immunity from the execution of judgments. This immunity applies regardless of whether a judgment creditor seeks to enforce a foreign judgment or arbitral award recognised by US courts or a judgment rendered by a US court. Because the available exceptions to immunity from execution are narrow, judgment creditors may face significant challenges when attempting to enforce a judgment against a foreign sovereign.

Four noteworthy developments have implications for the enforcement of judgments and awards against foreign sovereigns, as well as state-owned entities. 

Pre-Judgment Attachment of Assets

A first issue concerns the availability of pre-judgment attachment of sovereign assets. The FSIA presumptively prohibits the attachment of sovereign assets prior to the entry of judgment unless the property at issue is “used for a commercial activity” in the United States, the foreign sovereign has “explicitly waived its immunity from attachment prior to judgment” and the “purpose of the attachment is to secure satisfaction of a judgment”. See 28 USC Section 1610(d).

In Preble-Rish Haiti, SA v Republic of Haiti, 2022 WL 2751661 (Fifth Circuit 14 July 2022), the Fifth Circuit clarified the conditions under which courts will find such a waiver. In that case, Preble-Rish, a Haitian company, entered into contracts for fuel delivery with the Bureau de Monétisation de Programmes d'Aide au Developpement (BMPAD), a Haitian government agency. While arbitration was pending in relation to one of the deliveries provided for by these contracts, Preble-Rish sought to attach property belonging to BMPAD in the Southern District of Texas. The district court ultimately issued the writ of attachment. In finding the waiver requirements satisfied, the court pointed to the fact that the contracts specified that BMPAD would supply a letter of credit as payment and that BMPAD had used the property in question for commercial activity in the United States.

The Fifth Circuit, however, reversed the district court’s judgment, finding no explicit waiver by BMPAD of immunity from pre-judgment attachment. The Fifth Circuit explained that while a waiver need not expressly include the words “prejudgment attachment”, it must be “express, clear, and unambiguous” as to the foreign sovereign’s intention to waive immunity from pre-judgment attachment – Id at *4–5. Accordingly, it found language mentioning that an arbitral award will be “final, conclusive and binding” and letters of credit outside the context of disputes between the parties insufficient to amount to a waiver – Id. By comparison, the Second Circuit found a loan agreement expressly indicating that the Congo “agree[d] not to claim and waive[]” “immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process” sufficient to satisfy the FSIA’s waiver requirement for pre-judgment attachment. See Kensington Int’l Ltd v Republic of Congo, 461 F 3d 238, 243 (Second Circuit 2006). 

Discovery in Aid of Enforcement of a Judgment Against Sovereign Assets

A second issue concerns the location of assets suitable for attachment or garnishment. While locating assets is a common challenge when enforcing judgments, creditors require additional information when seeking enforcement against foreign sovereigns and their entities to meet the FSIA’s strict exceptions to immunity from execution.

For example, judgment creditors may seek to rely on the exception to immunity from execution that requires the identification of property “used for the commercial activity upon which the claim is based”. See 28 USC Section 1610. Discovery is accordingly an important tool for locating assets, as it enables parties to identify ownership of property and other assets that might not otherwise be public.

In the pre-judgment period, federal district courts generally limit the availability of discovery against foreign sovereigns. Against this background, post-judgment discovery of foreign sovereign assets takes on particular importance. As confirmed in Republic of Argentina v NML Capital, 573 US 134 (2014), judgment creditors may seek broad, even extraterritorial, discovery of a foreign sovereign debtor’s assets to aid their execution efforts. Such discovery covers the foreign sovereign’s “worldwide assets generally” for the purpose of “identify[ing] where [a state] may be holding property that is subject to execution” – Id at 145.

Following from NML Capital, district courts have granted broad discovery requests against foreign sovereign assets. In Owens v Republic of Sudan, 2020 WL 4039302 (DDC 17 July 2020) for example, the court declined to limit discovery to assets located on US territory. Similarly, in Tatneft v Ukraine, 2021 WL 5353024 (DDC 18 October 2021), the court reiterated that discovery could extend even to those assets likely to prove immune from attachment. In rejecting Ukraine’s attempt to limit discovery of certain assets related to its military and consular operations, the court in Tatneft explained that creditors may seek general information about a foreign sovereign’s assets even if those information requests also “disclose[] information about assets that are eventually deemed immune from execution” –  Id at *5.

Piercing the “Veil” to Attach Assets of State-Owned Entities

Another issue concerns the attachment of assets held by state-owned entities. As a general matter, US courts recognise the presumption that corporate entities have separate legal status, and thus judgment creditors cannot typically execute a judgment, or an award rendered against a foreign sovereign, against assets held by state entities.

However, as set out in Bancec, 462 US 611 (1983), courts may set aside this presumption where two exceptions apply. The first exception is where the corporate entity is “so extensively controlled by its owner that a relationship of principal and agent is created” and accordingly that “one may be held liable for the actions of the other” – Id at 629. The second is where recognising the separate legal status of the private corporation and the sovereign “would work fraud or injustice” – Id.

In Rubin v Islamic Republic of Iran, 138 S Ct 816 (2018), the Supreme Court indicated several factors that courts may consider when analysing the level of control required for the first exception:

  • the level of economic control by the government;
  • whether the entity’s profits go to the government;
  • the degree to which government officials manage the entity or otherwise have a hand in its daily affairs;
  • whether the government is the real beneficiary of the entity’s conduct; and
  • whether adherence to separate identities would entitle the foreign state to benefits in the US courts while avoiding its obligations – Id at 823.

Applying these factors, the Third Circuit in Crystallex Int’l Corp v Bolivarian Republic of Venezuela, 932 F 3d 126 (Third Circuit 2019) recently concluded that Venezuela’s relationship with its state-owned oil company Petróleos de Venezuela, SA (PDVSA) easily met the level of control required to consider PDVSA an alter ego of Venezuela. In reaching this decision, the court pointed to, among other factors, the granting by Venezuela’s Constitution of significant control over PDVSA, Venezuela’s ability to dictate the commercial terms for PDVSA to sell oil, the return of all profits to the Venezuelan government and President Maduro’s role in appointing PDVSA’s officers.

There is still some uncertainty concerning the minimum level of control required, including the extent to which ownership, or the appointment or removal of an entity’s officers or directors, is sufficient to overcome the presumption of separateness. In Gater Assets Ltd v Moldovagaz, 2 F 4th 42 (Second Circuit 2021), the Second Circuit explained that where a sovereign effectively wields the power of a majority shareholder over the relevant entity, “such authority does not in itself establish extensive control” – Id at 58. The court noted that the appointment of civil servants to the entity’s supervisory board was insufficient to establish extensive control and that the complainant “must additionally show that the Republic used its influence over these directors in order to interfere with the instrumentality’s ordinary business affairs” – Id at 59.

Another question concerns whether the foreign sovereign’s control over the legal entity in question must relate to the judgment creditor’s injuries. In Crystallex, 932 F 3d 126, the Third Circuit allowed a Canadian investor to attach shares held by PDVSA to satisfy the judgment against Venezuela. In permitting the attachment of shares, the court determined that Bancec did not require any connection between the foreign sovereign’s control over the entity in question and the plaintiff’s injuries.

Attaching Assets Subject to Sanctions

A final issue relating to enforcing judgments or awards against foreign sovereigns and sovereign entities concerns the relevance of government sanctions. 

Crystallex is once again illustrative. After obtaining recognition of an arbitral award, Crystallex received an attachment order over shares held by PDVSA, which the Third Circuit affirmed. The Office of Foreign Asset Control (OFAC), however, blocked the sale on the basis of sanctions imposed by the US government against Venezuela. The Delaware district court subsequently considered whether the court could nonetheless proceed toward a judicial sale of the shares while sanctions remain in place. The court concluded that it could take preliminary steps toward the sale, including issuing a sale procedures order, working with a court-appointed special master to implement that order and selecting a winning bidder, but it would not permit the sale to close while the sanctions remain in place.

In OI Eur Grp BV v Bolivarian Republic of Venezuela, 2022 WL 611563 (D Del 2 March 2022), the district court also considered the effect of sanctions on the execution of a foreign judgment against Venezuela. Unlike in Crystallex, where the court granted the writ of attachment against Venezuela before the US imposed sanctions, in this case the court considered whether it had authority to grant a writ at all while OFAC sanctions remain in place. The court ultimately granted the writ of attachment conditional on the creditor's obtaining a specific OFAC licence or a change in the sanctions regime. 

Statutory Interest

Another notable development pertains to the statutory interest rate applied by courts when recognising and enforcing monetary judgments and awards. For enforcing parties, even minor changes in the statutory interest rate can critically impact their ultimate recovery. Accordingly, a key question concerns the conditions under which the enforcing court can set the interest rate, particularly where a judgment or award already includes one.

When considering the applicable interest, New York courts typically distinguish between the periods before or after the foreign judgment is rendered (ie, the “pre-judgment” and “post-judgment” phases). Similarly, when enforcing awards, courts have generally referred to the interest applicable to the “pre-award”, “post-award, pre-judgment” (ie, the period before the court enforces the award) and “post-judgment” phases.

Enforcement of Foreign Judgments: Post-Judgment Interest

As a general rule, New York courts apply New York’s statutory interest rate as the post-judgment interest rate when enforcing judgments. This interest rate is currently set at 9% pursuant to NY CPLR Section 5004, except where otherwise provided by statute. 

However, principles of comity can affect the applicable interest rate. In Servipronto De El Salvador, SA v McDonald’s Corp, 837 F App’x 817 (Second Circuit 2020), the principal amount in the judgment had already been paid, and the El Salvadorian court had denied post-judgment interest. In rejecting the enforcing party’s request for post-judgment interest, the Second Circuit reasoned that principles of comity and res judicata prevented application of the New York statutory interest rate because the El Salvadorian court had already decided that issue. 

Enforcement of Arbitral Awards: Post-Award Interest and Post-Judgment Interest

Similar issues have arisen in the enforcement of arbitral awards.

In enforcing commercial awards, New York courts have recognised a “presumption in favour of pre-judgment interest” and have held that they may set the post-award, pre-judgment interest in cases where the award is silent. On the other hand, where awards have specified post-award interest, cases in the domestic arbitration context have reached conflicting conclusions on whether arbitrators or courts have the final word on its application. For example, in Media Force Ltd v Precise Leads, Inc, 2020 WL 8669829 (SDNY 30 November 2020), the court held that interest should begin to accrue on the date of the award, even where the award specified that interest should accrue 31 days from the date of the award. By contrast, in Oracle Corp v Wilson, 276 F Supp 3d 22 (SDNY 2017), the court was more deferential to the award and refused to adjust the award’s specified 3% interest rate to New York’s 9% statutory rate.

In the context of ICSID award enforcement, district courts have disagreed over whether they are obligated to apply an interest rate specified by a tribunal as applicable “until payment”, or whether tribunals must provide more explicit language to overcome the presumptive application of the federal post-judgment interest rate. For a judgment entered on 1 July 2022, the federal statutory rate under 28 USC Section 1961(a) is 2.83%, though it is set as “equal to the weekly average one-year constant maturity [US] Treasury yield [during the relevant period]” and thus variable.

In resolving this question, DC district courts have found that they are required to apply the federal interest rate except in two circumstances: (i) where parties contract for a different post-judgment interest rate with “clear, unambiguous and unequivocal language”; or (ii) where the tribunal “explicitly state[s] the interest rate… applie[s] ‘post-judgment.’” See OI Eur Grp BV v Bolivarian Republic of Venezuela, 2019 WL 2185040, at *6 (DDC 21 May 2019); Tenaris, SA v Bolivarian Republic of Venezuela, 2021 WL 1177996, at *2 (DDC 29 March 2021).

In practice, DC district courts have found that even language in ICSID awards specifying an interest rate applicable “until payment in full” or “up to the date of actual payment” is not sufficiently clear to enable the court to depart from the federal interest rate. See OI Eur Grp BV, 2019 WL 2185040, at *2; Tenaris, SA, 2021 WL 1177996, at *1. 

In contrast, a district court in the Southern District of New York has held that courts must enforce an ICSID award’s post-judgment interest as a matter of federal law. The award at issue in Mobil Cerro Negro, Ltd v Bolivarian Republic of Venezuela, 2015 WL 926011 (SDNY 4 March 2015) ordered 3.25% interest until payment of the award. In applying this rate as the post-judgment interest, the court reasoned that the award’s specified interest was part of the “pecuniary obligations” that the ICSID Convention’s enabling statute obligates federal courts to enforce – Id at *2. 

In light of the above, parties enforcing foreign judgments or awards in the United States may need to argue the issue of interest at the enforcement stage, despite having done so to obtain the original judgment or award.

As this section has demonstrated, the law relevant to the recognition and enforcement of judgments and awards in the United States continues to evolve. Accordingly, parties seeking to enforce a judgment or award in the United States must carefully consider developments in the relevant jurisdiction prior to seeking enforcement.

Debevoise & Plimpton LLP

919 Third Avenue
New York
NY 10022
USA

+1 212 909 6000

+1 212 909 6836

flavaud@debevoise.com https://www.debevoise.com/
Author Business Card

Trends and Development

Authors



Debevoise & Plimpton LLP is a premier law firm with market-leading practices, a global perspective and strong New York roots. Deep partner commitment, industry expertise and a strategic approach enable the firm to bring clear commercial judgement to every matter. The firm draws on the strength of its culture and structure to deliver superior work to every client through true collaboration. Debevoise’s international dispute resolution group is a global leader that has racked up some of the largest awards in the world for its clients. Led by 15 partners spanning nine offices and supported by over 100 qualified attorneys, the firm recently handled over 120 matters worth in excess of USD65 billion. Lawyers in the practice handle diverse matters, including international commercial and treaty arbitration, public international law and complex commercial litigation. The firm’s team has a deep commitment to the advancement of international arbitration through leadership, scholarship and innovation.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.