First Tuesday Update – coming to you this month on the second Tuesday due to the holidays – is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. As we welcome the New Year, we propose three resolutions for award creditors in 2019, based on last year's successes and challenges.
Consider Whether Sovereigns Repatriate Assets to Thwart Collection Strategies: Venezuela has learned some hard lessons about its non-immune assets in judgment-friendly jurisdictions. This team seized $300 million of Venezuela's money on behalf of ExxonMobil as described by Pulitzer Prize-winning journalist Steve Coll in his New York Times bestselling book Private Empire: ExxonMobil and American Power: "For the Steptoe lawyers the late-December Friday afternoon seizure of $300 million belonging to Hugo Chavez's government was like hitting a walk-off home run in the bottom of the ninth before a full house at Yankee Stadium." A defunct Canadian mining company, Crystallex, was able to strike a $1.4 billion settlement with Venezuela, after the US District Court in Delaware allowed Crystallex to seize shares in Citgo's parent company, a PDVSA subsidiary. Will sovereigns continue to keep non-immune assets in judgment-friendly jurisdictions or will enforcement strategies be even more challenging in the future?
Plan for Delays when Proceeding in US Courts: Increasingly, award creditors are running out of options for expedited recognition of arbitral awards in US court and facing long delays.
Revisit Your Dispute Resolution Clauses: Set yourself up for success (and speed) in 2019 and beyond by reconsidering your dispute resolution clauses. Our prior advice is even more poignant in today's enforcement environment – it is important to select a forum for enforcement, appoint domestic agents of service for foreign entities, and set a post-judgment interest rate.
Foreign Sovereign's Lessons Learned: Both ExxonMobil and Crystallex reached settlements with Venezuela after non-immune, commercial assets were seized in the United States. ExxonMobil successfully seized $300 million of a PDVSA subsidiary's assets in New York. Following an ICSID award, ExxonMobil reached a settlement with Venezuela. Crystallex was authorized to seize shares of PDVSA's US subsidiary, Citgo’s parent company. Thereafter, Crystallex and Venezuela reached a settlement. According to Crystallex, however, Venezuela breached that settlement agreement by filing its appellate brief to the Third Circuit asking the Court to reverse the District Court's grant of attachment. On January 2, the Third Circuit refused Crystallex's request for expedited review of the appeal. The writ of attachment remains subject appellate review. It remains to be seen if foreign sovereigns will continue to keep assets in judgment friendly jurisdictions. If repatriation occurs, even more aggressive judgment enforcement strategies may be necessary to obtain a resolution.
The New "Normal" for US Court Recognition: In 2018, the federal courts have been slow to recognize a number of arbitral awards under both the FAA and the ICSID Convention. Micula v. Romania is a stark example of the delay award creditors may face. The Micula brothers, Swedish food industry investors, have been trying for years to recognize a $250 million ICSID award against Romania that was issued in 2013. While the Miculas had recognized their award through an ex parte process in April 2015, that judgment was vacated, following the Second Circuit’s decision in Mobil Cerro Negro, Ltd. v. Venezuela, 863 F.3d 96 (2d Cir. 2017). Since the Miculas re-filed their recognition papers in the District Court in DC in November 2017, the Court has entertained multiple rounds of briefing on whether the creditors satisfied service requirements of the FSIA. Micula v. Government of Romania, No. 1:17-cv-02332 (D.D.C). With three different attempts at service and the Court's inquiry to the State Department—accomplishing service took 11 months. Now, the parties are briefing the Miculas' motion for judgment on the pleadings. This saga highlights the procedural hurdles that recalcitrant debtors can erect in the federal courts. Indeed, since the Micula decision in late 2017, there have been virtually no additional cases filed in the Southern District of New York. Even though venue is statutorily established in DC, many sovereigns do not maintain non-immune assets there so even once a judgment is obtained, creditors will need to register the judgment in jurisdictions where assets are located.
The Importance of Dispute Resolution Clauses: Ultimately, carefully drafted dispute resolution clauses can speed recognition of arbitral awards in US courts and aid enforcement. Issues such as immunity waiver, choice of forum and law, expedited service of process, and pre-award security are a few examples of issues that should be considered and addressed before a dispute arises if possible. Taking note of enforcement issues when drafting dispute resolution provisions can help make the difference between a paper victory and a real monetary recovery.