First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
This month we look ahead to 2020 and much anticipated developments in four stories we have been following:
The $1.2 billion judgment enforcement dispute between Crystallex and Venezuela could go to the US Supreme Court. In July 2019, the Third Circuit ruled that Crystallex International Corp. could seize shares in Citgo Petroleum Corp.'s parent company to enforce a $1.2 billion arbitral award against Venezuela. In an order issued December 12, 2019, Judge Stark stayed the proceeding pending conclusion of the proceedings in the Supreme Court and said there's a "greater-than-usual likelihood" the justices will take on the petition given the important legal and foreign policy issues it raises.
In 2019, President Trump lifted the suspension on the Helms-Burton Act's long-dormant private right of action. This triggered a wave of suits by plaintiffs who claim an ownership interest in Cuban property that was confiscated by Fidel Castro nearly sixty years ago. Plaintiffs argue that the defendants engaged in "trafficking" under the Act without providing any compensation. Courts are set to consider many pending dispositive motions on this new cause of action in 2020, including in ExxonMobil v. Cupet & CIMEX, where Steptoe represents ExxonMobil in its claims against Cuban agencies and instrumentalities.
In January 2020, the Supreme Court will hear argument in GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC et al. As we wrote in September 2019, the Supreme Court will consider the question of whether the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel.
Early 2020 will likely bring further developments regarding the ethics of litigation financing. The New York City Bar Association's Litigation Funding Working Group is expected to give a report in early 2020 regarding ethics considerations for litigation funding—18 months after issuing an ethics opinion warning that funding deals in which the attorney's repayments are tied directly to future fees or contingencies violate the fee-sharing ban under Rule 5.4.
Crystallex v. Venezuela – The Saga Will Continue
We expect that 2020 will deliver more noteworthy developments in the ongoing saga of Crystallex International Corporation versus Venezuela. In July 2019, the Third Circuit affirmed the Delaware District Court's order granting a writ of attachment of shares in the US-based holding company that owns Citgo.
On December 12, 2019, Judge Stark (D. Del.) stayed the litigation initiated by Crystallex until conclusion of the proceedings in the Supreme Court and said there's a "greater-than-usual likelihood" the justices will take on the petition given the important legal and foreign policy issues it raises. Judge Stark also pointed out that US sanctions imposed on Venezuela has complicated enforcement matters in that creditors must now obtain a license before they can auction off blocked assets. Additionally, Judge Stark said he was concerned about not creating a "run on the bank," as Venezuela's numerous other creditors rush to the court. Judge Stark highlighted once again the complications that Venezuela's creditors may face in obtaining Treasury Department's Office of Foreign Asset Control's (OFAC's) authorization of execution against the shares. Nonetheless, Judge Stark declined Venezuela's request that a stay be imposed until an OFAC license is obtained.
Were the Court to hear this case, one of the issues before the Court would be whether the District Court in Delaware had jurisdiction over PDVSA simply because it had jurisdiction over the Republic of Venezuela and found PDVSA to be an alter ego. According to Crystallex's most recent filing, Venezuela is purposefully delaying reaching the Court. On December 19, 2019, Crystallex filed a motion to modify the stay and have it conditioned upon Venezuela and PDVSA filing their cert petition by January 21. As Crystallex noted in its brief, if a 60-day extension is requested, the cert petition will not be due until April 20, 2020. Even if the Court does not reach the merits of this dispute in 2020, we anticipate that the Crystallex saga will continue throughout the year.
Helms-Burton Act – Courts Set to Deal with Novel Issues in 2020
The Trump Administration's decision to end the suspension of Title III of the Helms-Burton Act led to suits against US companies that provided travel services to Cuba during the Obama Administration's thaw in US-Cuban relations. The first two substantive decisions under the Act have prompted more plaintiffs to bring suit. In August 2019, both Judge Bloom and Judge King of the US District Court for the Southern District of Florida denied Carnival Cruise's attempt to dismiss the suits pending against it on the basis of Carnival's US Treasury licenses to provide travel services to Cuba. The plaintiffs brought suit against other cruise lines soon after these decisions.
In addressing this novel cause of action, defendants have taken a variety of procedural approaches and raised a multitude of defenses, jurisdictional issues, and constitutional arguments. Many of these arguments were presented within the last several months, which foreshadows an active 2020 in which many cases have pending dispositive motions. In fact, over the past two days, Judge Bloom has granted motions to dismiss by MSC Cruise Lines and Norwegian Cruise Lines on the basis that the plaintiff failed to allege that either defendant trafficked in the property during plaintiff’s time-limited leasehold interest which expired in 2004.
While there are several actions pending against US and foreign corporations, there is only one active case against Cuban agencies and instrumentalities. In this case, ExxonMobil brought suit against CUPET (the state-owned and controlled oil company) and Cimex (the state-owned and controlled consumer goods and finance company) for the trafficking and use of ExxonMobil's former confiscated property, including an oil refinery and service stations. Plaintiff filed its amended complaint on November 12, 2019 and defendants' response is due on March 11, 2020. If defendants' previous motion to dismiss is any indication, the parties will be litigating the court’s jurisdiction under the Foreign Sovereign Immunities Act and the Bancec line of cases. This case, which marks another instance in which Steptoe has assisted ExxonMobil in its efforts to receive compensation stemming from an expropriation by a foreign state, will likely serve as a bellwether for future Helms-Burton Act cases against Cuban agencies and instrumentalities.
Non-signatory International Arbitration – Clarity from the Supreme Court?
On January 21, the Supreme Court will hear argument in GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA LLC et al. The Supreme Court will consider the question of whether the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel. While this use of equitable estoppel has been a common means to compel arbitration pursuant to domestic arbitration agreements, there is a circuit split as to whether non-signatories can enforce international arbitration agreements under the New York Convention.
This issue is important not just for arbitration practitioners, but also for any company that engages in cross-border commercial transactions. If the Supreme Court rejects non-signatory arbitration, it will be harder to enforce arbitration agreements that fall under the New York Convention, and non-signatories that are involved in the underlying commercial transaction may need to take additional steps to avoid being unexpectedly subject to suit in a foreign court. Stay tuned for our take on the implications of the Supreme Court’s decision.
Litigation Funding – Ethics Report Expected from the NY Bar Association
Litigation funding is a hot topic in commercial disputes, international arbitration, and judgment enforcement. Increasingly, litigation funding arrangements play a key role in litigation. Potential ethics concerns with litigation funding is an equally hot topic and we expect that trend will continue in 2020.
In July 2018, the New York City Bar Association's Professional Ethics Committee issued Formal Opinion 2018-5 (“Opinion”) that concluded that nonrecourse commercial litigation funding agreements between a lawyer or law firm and a litigation funder violate the prohibition on sharing fees with nonlawyers in Rule of Professional Conduct (RPC) 5.4(a) if future payments to the funder are contingent on the lawyer's receipt of legal fees or on the amount of legal fees received in one or more specific matters. Many practitioners and scholars alike have criticized the Opinion, claiming that it is at odds with the purpose of the rule and New York case law.
A Litigation Funding Work Group has been established to address a variety of issues surrounding litigation funds, including the ethics rules and framework, disclosure issues and recent developments. According to the New York City Bar website, "[t]he Working Group will not be revisiting Opinion 2018-5, but is open to exploring potential revisions to the ethics rules and/or legislation." The Working Group expects to issue a report on its findings in early 2020.