Arbitration. Confirmation of Award. Fifth Circuit holds that personal jurisdiction over Defendants is necessary to confirm arbitration award covered by the New York Convention.
In two similar cases consolidated for argument by the Fifth Circuit, Petitioners appealed denials of their petitions to confirm arbitration awards against Respondents, the People’s Republic of China (the “PRC”) and Chinese corporations owned by the PRC (the “Corporate Respondents”). The district court's decisions in both cases were based on a lack of personal jurisdiction over the Corporate Respondents, and a lack of subject matter jurisdiction over the PRC. The Fifth Circuit upheld the denial of the petitions for confirmation.
The court first held that foreign corporations are entitled to the protections of the Due Process Clause of the United States Constitution, thus sufficient contacts between Respondents and the forum state had to be established in order to exercise jurisdiction over them. The court then agreed with the district court, and previous rulings by other circuits, in finding that although the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention"), 9 U.S.C. §§ 201-208, did not list personal jurisdiction as a ground for denying confirmation, the Due Process Clause required dismissal of the petition if personal jurisdiction was lacking.
The court then addressed Petitioners' argument that the Corporate Respondents were alter egos of the PRC, and therefore not entitled to Due Process protection. Petitioners contended that because a court need not establish personal jurisdiction over a foreign sovereign, it was also error to dismiss that foreign sovereign's alter egos for lack of jurisdiction. The court found that although the PRC was the owner of the Corporate Respondents, the evidence did not show the level of PRC-control over the Corporate Respondents required for disregarding their separate juridical identity. In particular, there was no evidence that the PRC reviewed the Corporate Respondents' management decisions, or commingled funds with the Corporate Respondents.
In both cases, the court next examined whether it had subject matter jurisdiction over the PRC, which could only be the case if an exception to the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1604, applied. The court noted that there is an exception to immunity for confirmation proceedings where the foreign sovereign had signed the underlying arbitration agreement. However, in this case, only the Corporate Respondents, and not the PRC, had signed the relevant arbitration agreements. Therefore, because the court had previously found that the PRC and Corporate Respondents were not alter egos, there was no FSIA exception, and therefore no subject matter jurisdiction over the PRC.
Finally, in Covington v. Xiamen, the court considered the district court’s denial of Petitioners' request for jurisdictional discovery of documents related to their alter ego claims. The court noted that Petitioners had not alleged “specific facts” as to how the PRC exercised control over the Corporate Respondent which could have been proved through the requested documents. The court then held that because such allegations are required in the Fifth Circuit before approving discovery into a foreign sovereign’s affairs, the district court’s denial of Petitioners' request was not an abuse of discretion.