PrintShare


Publications

Weapons of International Arbitration - Update

Client Advisory

July 11, 2014

Introduction

The advantages of New York law and New York as a forum for international dispute resolution are well known.[1] Less well known is the assistance available from New York courts in connection with international arbitrations which take place outside of New York. This includes pre-arbitration security, pre-arbitration discovery from third parties, and assistance in enforcing a non-U.S. award.

These remedies may be available even if the parties to the international arbitration have no connection with New York. Why is that? It is because the courts in New York are “arbitration friendly” in three significant ways.

A.    Pre-arbitration Security

New York courts historically lacked authority to issue attachments in aid of a foreign arbitration.[2]  However, there have been relatively recent statutory changes that permit a court to grant an order of attachment or a preliminary injunction in aid of arbitration outside of the United States, namely, N.Y. C.P.L.R. §7502(c). The only ground for such relief is that a final arbitration award may be “rendered ineffectual” absent such relief.  A 2001 case involving N.Y. C.P.L.R. §7502(c) held that a creditor could attach assets in New York of a debtor whose principal place of business was in India, in aid of an anticipated Singapore arbitration where New York lacked subject matter or personal jurisdiction over the Indian debtor. See Sojitz Corp. v. Privthvi Information Solutions Ltd., 921 N.Y.S.2d 14 (1st Dep’t 2011)[3] (affirming pre-award attachment for security purposes only in aid of foreign arbitration under N.Y. C.P.L.R. §7502(c), even though the target of attachment had no connection to New York by way of subject matter or personal jurisdiction, other than the fact that a customer who owed money to debtor was located in New York).

Although it is black letter law that injunctive relief is not available for a contract claim for money damages, there are exceptions to that rule.[4] In Credit Agricole Indosuez v. Rossiyskiy Kredit Bank, 94 N.Y. 2d 541 (2000), the New York Court of Appeals, citing the U.S. Supreme Court’s decision in Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 US 308 (1999), recognized two exceptions to the general rule: (1) when equitable relief is granted under procedures independent of the New York attachment statute, N.Y. C.P.L.R. §6301[5] and (2) when the suit involves claims of the plaintiff to a specific fund, rightly regarded by the court as “the subject of the action” under N.Y. C.P.L.R.§6301, making a preliminary injunction appropriate under the express wording of the statute. 94 N.Y.2d at 548. 

Thus, in New York, a litigant may obtain a preliminary injunction to secure an ultimate money award in aid of arbitration in conformance with the exceptions to the general rule as articulated in Credit Agricole.[6] 

What are the jurisdictional requirements for an attachment or injunction in aid of arbitration in New York? In Sojitz, the court noted that the plaintiff may attach property located in the state “as security” for a judgment being sought in another forum without demonstrating minimum contacts with the state.[7] 

B.     Discovery

U.S. courts also may order that testimony be given or documents be produced in aid of a foreign proceeding or international tribunal. 28 U.S.C. §1782.[8]

Prior to 2004 and the Supreme Court’s decision in Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004), U.S. courts did not extend U.S. discovery to international arbitration.[9] In Intel, the Supreme Court validated the use of broad U.S. discovery in aid of foreign proceedings but did not explicitly state that it was available in international arbitrations. Since the Supreme Court’s Intel decision, the conventional wisdom has been that international arbitration tribunals fall within the scope of §1782, allowing discovery in aid of foreign legal proceedings.[10]

In our prior Client Advisory dated October 9, 2012 we noted that “Last June, the Eleventh Circuit, in Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., 685 F.3d 987 (11th Cir. 2012), held that an Ecuadorian arbitral tribunal was a foreign “tribunal” for the purpose of §1782. This is the first appellate court to so rule, and other circuit courts will most likely follow this persuasive and well reasoned opinion.[11]” Fifteen months later, and seemingly out of the blue, the 11th Circuit sua sponte vacated that opinion and substituted it with an opinion dated January 10, 2014. The new opinion avoided deciding the issue whether the pending arbitration between the parties is a “proceeding in a foreign tribunal” by finding that the request for discovery was based on its use in reasonably contemplated (but not yet filed) civil proceedings involving an allegation of collusion. In footnote 4, the court stated that it declined to answer the substantial question of whether a foreign arbitration is a “tribunal” under § 1782 on the sparse record found in this case. 

An examination of the 11th Circuit docket reveals that over a year after the first decision, the losing party referred the 11th Circuit to a decision from the U.S. District Court for the Central District of California that held that a private arbitration is not a “foreign or international tribunal” under 28 U.S.C. § 1782. Apparently, the 11th Circuit, in light of the parties’ belated post decision submissions, “theoretically” on its own motion revised the reasoning of its opinion but did not change the result of its prior decision permitting discovery.

In a nutshell, the broad scope of §1782 relief does not require that the foreign proceeding be “pending” or “imminent” but only within reasonable contemplation.[12] The applicant need only be an interested person,[13] the application may be made ex parte to the district court, there is no requirement that the requested discovery be received into evidence in the foreign jurisdiction,[14] and there is no requirement to demonstrate that the requested information would be discoverable in the foreign jurisdiction.[15]

C.    Enforcement

Traditionally, New York courts have confirmed foreign arbitration awards into judgments pursuant to the New York Convention.[16] What is relatively new is that New York courts will now go the next step and assist in satisfying the judgment. In Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), the court held that a court with jurisdiction over a garnishee (not the judgment debtor) may order the garnishee to transfer extraterritorial assets in its possession to the United States. Therefore, wherever assets are located, they are subject to garnishment in New York if they are held by a corporation subject to personal jurisdiction in the state.[17] 

There is no longer a requirement to prove that the judgment debtor has assets within the state.[18] Koehler involved a default judgment in Maryland District Court against a resident of Bermuda who owned stock in a corporation. The stock certificates were in the possession of the Bank of Bermuda and located in Bermuda. The judgment creditor filed a petition in New York under CPLR 5225(b) (relating to the payment or delivery of property in judgment enforcement actions) against the Bank of Bermuda which had a New York office, seeking a turnover of the stock certificates (or the cash value thereof). The Court of Appeals ruled that New York courts may order the turnover of out-of-state assets of a debtor under the control of a garnishee bank with a New York office.[19]

Since the Koehler decision, it is clear that where a court has jurisdiction over a garnishee holding an asset in which a plaintiff has an interest, the court may also grant an order of attachment over an individual’s tangible or intangible property even if it is located outside New York. [20] However, New York courts may not issue a turnover order pursuant to N.Y. C.P.L.R. § 5225(b) to an entity that does not have actual possession or custody of a debtor’s assets.[21] Thus, it will be increasingly difficult for a judgment debtor to shield assets from garnishment by transferring assets abroad because judgment creditors may be able to reach a debtors’ assets located outside of New York.[22]  

Conclusion

There is no downside to having security for your claim, and you can never have too much evidence to prove a claim. Whether security is available in New York will depend on the facts of the case. As to evidence, a review of the cases decided under §1782 demonstrates how foreign litigants have taken advantage of U.S. discovery procedures to obtain evidence in the United States. And when it comes to enforcement of an arbitration award, courts in New York continue to be the most “arbitration friendly.” Therefore, when you have an arbitration case at home and you are reviewing your legal arsenal, counsel should consider how the courts in New York can assist in advancing the clients’ interests. 

 

Questions regarding this advisory should be addressed to Donald J. Kennedy (212-238-8707, kennedy@clm.com), Gary D. Sesser (212-238-8820, sesser@clm.com) or Mark R. Zancolli (212-238-8735, zancolli@clm.com).

 
Endnotes


[1] See NYS Bar Association, Dispute Resolution Section, International Section, Choose New York for International Arbitration, http://www.nysba.org/AM/Template.cfm?Section=Dispute_Resolution_Home&ContentID=52948&Template=/CM/ContentDisplay.cfm.

[2] In Cooper v. Ateliers de la Motobecane, 57 N.Y.2d 408 (1982), the New York Court of Appeals concluded that a pre-arbitration attachment in anticipation of a Swiss arbitration award would violate the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 UST. 2517 (reprinted as note following 9 U.S.C. §201) (the “New York Convention”). After Cooper, courts in New York held that the New York Convention precluded the judicial grant of provisional remedies in support of foreign arbitration proceedings. See Drexel Burnham Lambert Inc. v. Ruebsamen, 531 N.Y.S.2d 547, 551 (1st Dep’t 1988). 

[3] N.Y. C.P.L.R. §7502 was amended in October 2005 to permit New York courts to grant attachments or preliminary injunctions in connection with an arbitration inside or outside the state by providing in relevant part as follows:

The supreme court ... may entertain an application for an order of attachment or for a preliminary injunction in connection with an arbitration that is pending or that is to be commenced inside or outside this state, whether or not it is subject to the United Nations convention on the recognition and enforcement of foreign arbitral awards, but only upon the ground that the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.

[4] In Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999), the Supreme Court held that the District Court lacked the authority to issue a preliminary injunction preventing petitioners from disposing of their assets pending adjudication of respondents’ contract claim for money damages because such a remedy was historically unavailable from a court of equity.

[5] N.Y. C.P.L.R. §6301 sets forth the grounds for a preliminary injunction and temporary restraining order.

[6] See Winter v. Brown, 853 N.Y.S.2d 361 (2d Dep’t 2008). 

[7] In Shaffer v. Heitner, 433 U.S. 186 (1977), the Supreme Court found that a court cannot obtain personal jurisdiction over a party merely on the basis of that party’s ownership of property in the forum state. Quasi in rem jurisdiction is subject to the constitutional due process requirement of minimum contacts. In short, a person’s rights in property may be adjudicated only in a jurisdiction with which that person has at least minimum contacts in accordance with International Shoe v. Washington, 326 U.S. 310 (1945). Shaffer, 433 U.S. at 212. In Sojitz Corp. v. Prithvi Information Solutions Ltd., 921 N.Y.S.2d 14 (1st Dep’t 2011), the court relied on the “security” exception, recognized in Shaffer, to the requirement of minimum contacts for quasi in rem jurisdiction. Id. at 18-19. The Sojitz court found that New York’s attachment statute does not run afoul of Shaffer when it is used for purposes of security in aid of arbitration rather than to confer personal jurisdiction.

[8] Section 1782(a) states in relevant part: “[t]he district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation...”

[9] See Nat’l Broadcasting Co. v. Bear Stearns & Co., 165 F.3d 184 (2d Cir. 1999) (holding that §1782 did not apply to private arbitration).

[10] See, e.g., In re Babcock Borsig AG, 583 F. Supp.2d 233 (D. Mass. 2008): In re Hallmark Capital Corp., 534 F.Supp.2d 951 (D. Minn. 2007); In reOxus Gold PLC, Misc. No. 06-82, 2006 WL 2927615 (D.N.J. Oct. 11, 2006); In re Roz Trading Ltd., 469 F.Supp.2d 1221 (N.D. Ga. 2006); see also, Tyler Robinson, “The Extraterritorial Reach of 28 U.S.C. §1782 in Aid of Foreign and International Litigation and Arbitration,” 22/2 The American Review of International Arbitration 135, 136 (2011); but see In re Norfolk S. Corp., 626 F. Supp. 2d 882 (N.D. Ill. 2009); La Comision Ejecutiva Hidroelecctrica Del Rio Lempa v. El Paso Corp., 617 F. Supp. 2d 481 (S.D. Tex. 2008).

City Bar Report: 28 U.S.C. §1782 as a Means of Obtaining Discovery in Aid of International Commerical Arbitration – Applicability and Best Practices, by The Committee on International Commercial Disputes, http://www.nycbar.org/pdf/report/1782_Report.pdf.

But see Discovery Under 28 U.S.C. § 1782: Distinguishing International Commercial Arbitration and International Investment Arbitration. 1 Stan. J. Complex. Litig. 295(2013)

[11] In an unpublished per curiam decision, El Paso Corp. v. La Comision Ejecutiva Hidroelectrica Del Rio Lempa, 341 F. App’x 31 (5th Cir. 2009), the Fifth Circuit held that the Supreme Court’s Intel decision did not unequivocally direct that §1782 discovery was available for international arbitration and therefore declined to overrule its previous opinion, Republic of Kazakhstan v. Biedermann International, 168 F.3d 880 (5th Cir. 1999), stating that §1782 discovery did not apply to international arbitration. But see Ecuador v. Connor 708 F. 3d 661 (5th Cir. 2013)

[12] Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241, 259 (2004).

[13] Id. at 256-57.

[14] Brandi-Dohrn v. IKB Deutsche Industriebank AG, 673 F.3d 76, 82 (2d Cir. 2012).

[15] Marubeni America Corp. v. LBA Y.K., 335 Fed Appx 95, 98 (2nd Cir. 2009); Brandi-Dohrn, 673 F.3d at 82.

[16] The Convention on Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, available at:

http://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/XXII_1_e.pdf.  See F. Hoffmann-La Roche Ltd. v. Qiagen Gaithersburg, Inc., 730 F. Supp. 2d 318, 324-25 (S.D.N.Y. 2010); Telenor Mobile Comm’n v. Storm LLC, 584 F.3d 396, 404-05 (2d Cir. 2009). 

[17] In the Supreme Court’s recent decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Court stated that “only a limited set of affiliations with a forum will render a defendant amenable to all-purpose [general] jurisdiction there.” Id. at 760. In that regard, the Court stated that “[w]ith respect to a corporation, the place of incorporation and principal place of business are ‘paradigm . . . bases for general jurisdiction.’” Id. (citations omitted). 

Significantly, the Court further stated that “the exercise of general jurisdiction in every state in which a corporation ‘engages in a substantial, continuous, and systematic course of business’ . . . is unacceptably grasping.” Id. at 761. Although the Court acknowledged “the possibility that in an exceptional case, . . . a corporation’s operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State,” the Court ruled that “Daimler’s activities in California [did] not approach that level.” Id. at 761 n. 19. (In Daimler, the Supreme Court assessed whether Daimler – a German company with headquarters in Stuttgart – was subject to jurisdiction in California for claims based on events that occurred outside the United States. Id. at 751. Jurisdiction over the action “was predicated on the California contacts of Mercedes-Benz USA, LLC (MBUSA), a subsidiary of Daimler incorporated in Delaware with its principal place of business in New Jersey,” and plaintiffs’ contention that MBUSA “should be treated as Daimler’s agent for jurisdictional purposes.” Id. at 751, 752. Although the Court found that MBUSA “has multiple California-based facilities” and “is the largest supplier of luxury vehicles to the California market,” the Court concluded that such contacts were insufficient to confer general jurisdiction over Daimler in California. Id. at 752, 761-762.)

The Daimler decision has narrowed the situations in which foreign corporations may be subjected to general jurisdiction. Although prior cases such as Tauza v. Susquehanna Coal Co., 220 N.Y. 259 (N.Y. 1917) “upheld the exercise of general jurisdiction based on the presence of a local office, which signaled that the corporation was ‘doing business’ in the forum,” the Supreme Court in Daimler stated that its prior citations to such cases “should not attract heavy reliance today.” Daimler, 134 S. Ct. at 761 n. 18. In sum, the Daimler decision allows a court to exercise general jurisdiction over a corporation only where the corporation is incorporated in or has its principal place of business in the forum state, or “in an exceptional case” where the “corporation’s operations in a forum other than its formal place of incorporation or principal place of business [are] so substantial and of such a nature as to render the corporation at home in that state.” Id. at 760, 761 n. 19.

[18] One notable exception is the “separate entity rule” which does not allow a judgment creditor to reach assets in a bank branch outside the United States by serving legal papers on a branch in New York. See Shaheen Sports, Inc. v. Asia Insurance Co., 98 Civ. 5951, 11 Civ. 920, 2012 WL 919664, at *4-5 (S.D.N.Y. Mar. 14, 2012) (holding that New York’s separate entity rule survives Koehler). Earlier this year, the U.S. Court of Appeals for the Second Circuit issued a certified question to the New York Court of Appeals in Tire Engineering & Distrib. v. Bank of China, 740 F. 3d 108 (2d Cir. 2014) whether the “separate entity rule” precluded a judgment creditor from ordering a garnishee bank operating branches in New York to restrain a debtor’s assets held in foreign branches of the bank. Oral argument is scheduled for September, 2014.

[19] Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533, 541.

[20] See Hotel 71 Mezz Lender LLC v Falor, 14 N.Y. 3d 303 (2010).

[21] Commonwealth of the Northern Mariana Islands v. Canadian Imperial Bank of Commerce, 21 N.Y. 3d 55 (2013).

[22] See Damien H. Weinstein, New York: The Next Mecca for Judgment Creditors? An Analysis of Koehler v. Bank of Bermuda Ltd. 78 Fordham Law Review 3161, 3194-95 (2010)



Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2017 Carter Ledyard & Milburn LLP.
© Copyright 2014


© Copyright 2017 Carter Ledyard & Milburn LLP