First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.

In this edition of the First Tuesday update, we look at one creative strategy for dealing with the Federal Arbitration Act’s (FAA) three-year statute of limitations on confirmation and enforcement of an arbitral award under the New York Convention. (For domestic arbitrations falling under Chapter 1 of the FAA, the statute of limitations is one year. See 9 U.S.C. § 9.)

This limitations period can pose a problem for international arbitral awards rendered in proceedings outside the United States if efforts to confirm and enforce the award in the US are not commenced within the first three years after the award is issued. One strategy to consider in this scenario is to obtain a judgment in a foreign court recognizing the award and then bring an action to domesticate the judgment in a US court. This approach may benefit from the longer limitations periods typically available in the US for domesticating foreign judgments.

Suppose a dispute arises between your company and a vendor or a customer involving a project outside the US. Your contract calls for arbitration somewhere not in the US. You commence arbitration and, after a hard fought proceeding, you prevail and are awarded a substantial sum of damages. You now have a favorable arbitral award, the enforcement of which likely falls under the New York Convention. As such, your counsel recommends that you bring an action in the courts of the primary jurisdiction (likely the situs of the arbitration), to recognize the award as a judgment. You do so and obtain a judgment, but the ensuing attempts to collect from the award debtor are unsuccessful. After several years, you receive new information suggesting that your adversary may have assets in the US. So you consult with US counsel, only to be disappointed upon learning that, because more than three years have passed, the FAA bars any action to confirm and enforce your award in the US.

In our experience, it is relatively common for award creditors to overlook the FAA’s limitations period when seeking to enforce an award. If the award debtor is not a US citizen and the situs of the arbitration was not in the US, there may be little reason to expend additional resources on post-award litigation in the US courts. Moreover, in the absence of evidence of assets in the US, an award creditor rightly may view such litigation as futile.

Nevertheless, the US plays a significant role in the global economy and the world financial system. Sooner or later, an award creditor may discover that an award debtor’s assets or finances have some nexus with the US, at which point the question is whether the award creditor waited too long. If more than three years have passed since the award was issued, the FAA may dictate that enforcement is time-barred.

On the other hand, if the award creditor had a foreign judgment (instead of a foreign award), the odds are pretty good that the limitations period for domesticating and enforcing the judgment in the US courts has not expired. This is because the limitations period for foreign judgments is often 10 years (or more). If the award was turned into a judgment by a non-US court, would the award creditor then be permitted to enforce the foreign judgment in a US court?

It turns out both the DC Circuit Court of Appeals and the Second Circuit Court of Appeals answered this question affirmatively. In its 1994 decision, in Seetransport Wiking Trader Schiffahrtsgesellschaft MBH & Co v. Navimpex Centrala Navala, 29 F.3d 79 (2d Cir. 1994), the Second Circuit held that a ruling of Paris Court of Appeals conferring exequatur on an arbitration award was within category of judgments enforceable under the New York Uniform Foreign Money-Judgments Recognition Act, even though the time for confirming the award under the FAA had already passed. Twenty years later, in Import Export S.A. v. Republic of the Congo, 757 F.3d 321 (2014), the DC Circuit reached the same conclusion, citing Seetransport and holding that an English court judgment confirming a foreign arbitral award could be enforced and the FAA’s three-year limitations period did not pre-empt the longer 15-year period under the District of Columbia Uniform Foreign-Country Money Judgments Recognition Act.

The approach under these precedents can be distilled into three steps as follows:

  • Obtain a foreign judgment: It is often the case that an award creditor will commence recognition proceedings in the court of the primary jurisdiction reasonably soon after obtaining the award, but if this did not occur, then it will be necessary to do so (or to find another foreign court that will recognize the award).

  • Identify the proper US forum: Armed with a foreign judgment, the award creditor should consult with counsel to identify the US court with proper jurisdiction and venue over the dispute. This issue can be complicated, though in cases involving debtors that are foreign states, US law provides for the default forum in Washington, DC.

  • Commence action to domesticate the judgment: Once the proper forum is identified, a lawsuit can be commenced seeking to domesticate and enforce the foreign judgment.

The approach outlined here is obviously not preferable. Award creditors should carefully consider taking prompt action if there is any chance they will need to enforce their awards in the US. However, in the event that enforcement becomes time-barred under the FAA, this approach may offer an alternative remedy to the aggrieved creditor.