Enforcing foreign judgments in the United States: a practical primer
October 2019 | SPOTLIGHT | LITIGATION & DISPUTE RESOLUTION
Financier Worldwide Magazine
October 2019 Issue
There has been a proliferation of global commercial, financial and business disputes over the past few years. By necessity, these disputes are often heard in their countries of origin or in offshore jurisdictions where investment partnerships and global holding companies are domiciled. As any seasoned litigator knows, however, obtaining a judgment is only one step in the process of making a party whole, and it is sometimes the easiest step. Enforcing the judgment through voluntarily payment or seizure of assets can be much more daunting than prevailing on the merits of a claim. This is often true because the party against whom the judgment enters may have few or no assets in the jurisdiction where the verdict was obtained. This is especially the case in offshore jurisdictions where a company may technically be domiciled, but does almost no business in that forum, and has no substantial bank accounts or assets in the jurisdiction.
The forum of choice to enforce cross-border judgments, by default, is often the US. This is due to the fact that many companies and individuals own assets in the US, and also because of the likelihood that any global business will eventually need to utilise the US financial system to process dollar-denominated transactions. These facts, coupled with the liberal US pleading standards and access to courts, mean that the US can be a very attractive location to enforce judgments rendered in foreign locales.
First, however, a quick briefing on US courts. Broadly defined, the US legal system has two separate court systems, federal and state. While many foreign litigants are familiar with the federal system, few understand the differences and nuances of the 50 separate state laws and courts. The distinction is important because enforcement of judgments is generally a matter of state law. To provide some uniformity to foreign judgement enforcement in the US, many, but not all, states adopted the 1962 Uniform Foreign Money-Judgments Recognition Act, which was updated in 2005 by the Uniform Foreign-Country Money Judgments Act (the Uniform Act).
States that have adopted the Uniform Act, including New York, will only allow enforcement of foreign judgments when three factors are met. First, the foreign judgment must be “final, conclusive and enforceable” in the country where it was rendered. In many instances, this means that judgments on appeal in the foreign jurisdiction may not be immediately enforceable in the US. For example, New York courts will often stay proceedings to enforce a foreign judgment if it is being appealed in the foreign jurisdiction.
Second, the foreign judgment must have been rendered under a system that provides impartial tribunals and procedures compatible with US notions of due process of law. This is a relatively easy hurdle to overcome, and rejection of a foreign judgment will occur only if the foreign court system is seriously compromised. Examples of countries that have met the test include the UK, the Cayman Islands, Singapore, Hong Kong, Israel, Morocco and most EU nations. Those that have failed the test include Liberia, Ecuador, Iran, Nicaragua, Cuba, North Korea, Iraq and Congo.
Third, the foreign court must have personal jurisdiction over the defendant. Personal jurisdiction is found when any of the following factors is shown: (i) the defendant is personally served in the foreign country; (ii) the defendant voluntarily appears to defend the matter, except for a special appearance to contest jurisdiction; (iii) the defendant agreed to submit to the jurisdiction of the foreign court prior to the commencement of the proceedings; (iv) the defendant was domiciled or incorporated in the foreign state; (v) the defendant had a business office in the foreign state and the proceedings arose out of transactions related to that office; or (vi) the defendant operated a motor vehicle or airplane in the foreign country that gave rise to the proceedings. There is also a catch-all provision which allows US courts to enforce foreign judgments where the US court finds that sufficient contacts exist between the foreign country and the party against whom judgment entered to warrant the exercise of jurisdiction, the ‘you know it when you see it’ exception.
While a court must find these three mandatory factors in order to enforce a foreign judgment, there are a host of discretionary factors which would allow a US court to refuse enforcement of a foreign judgment. For example, a US court may refuse to enforce a foreign judgment if it finds: (i) that the foreign court did not have subject matter jurisdiction; (ii) notice of the proceedings were untimely; (iii) the judgment was obtained by fraud; (iv) the judgment is based on a cause of action that is repugnant to the US state’s public policy; (v) the judgment conflicts with a separate conclusive judgment; (vi) the foreign court proceedings ran contrary to an agreement between the parties as to settlement of a dispute; (vii) the foreign court was a seriously inconvenient forum and personal jurisdiction was based solely on personal service; or (viii) the gravamen of the judgment was defamation and conflicts with freedom of speech and press protections afforded by the US or the state’s constitution. This concern can also bar enforcement of certain judgments based upon intellectual property causes of action that would run afoul of US constitutional norms and public policy.
The process to enforce a foreign judgment can move very quickly, especially in New York. As the highest state court in New York found in CIBC Mellon Trust Co. v. Mora Hotel Corp, “New York has traditionally been a generous forum in which to enforce judgments for money damages rendered by foreign courts”. This is true for, primarily, two reasons. First, New York law does not require the state to have personal jurisdiction over the party against whom enforcement is sought; rather, all that is needed is jurisdiction over assets in the state. Even if the debtor does not have assets currently in New York, however, the state will still allow the enforcement of a foreign judgment where the judgment-holder can credibly allege that it ‘anticipates’ that the other party may bring assets into New York at a later date. Given the global supremacy of the New York banking system, this is a powerful tool for any entity seeking judgment enforcement, as it is virtually impossible for any global actor to avoid the New York banking system indefinitely. Second, in addition to filing a traditional lawsuit, New York allows parties seeking to enforce foreign judgments the option of filing a motion for summary judgment against the debtor in lieu of a formal complaint. This drastically reduces the time required to enforce a foreign judgment which can be accomplished, in some instances, in a matter of weeks.
Before filing in New York, however, foreign litigants need to know that judgments rendered in one US state are not automatically recognised by other US states. Thus, it is important to file the action in the state where the assets are located, or in the case of New York, where you anticipate assets will be moved. Obtaining a New York judgment will not help if the assets are located in California, for example. In this regard, foreign parties must keep in mind that not all US states have adopted the Uniform Act. States that tend to attract foreign investment have typically done so, such as New York, California, Florida, Texas, Massachusetts and Delaware, while many other states have not done so, such as Arizona, Arkansas, Kentucky, Louisiana, Mississippi, Nebraska, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, West Virginia, Wyoming and the Commonwealth (territory) of Puerto Rico. While foreign judgments can still be enforced in this sampling of latter states, the actions tend to look more like traditional debt enforcement cases and can take longer to prosecute.
Finally, foreign judgment holders should be aware of statutes of limitation and burden of proof factors that are codified in the Uniform Act. Generally speaking, an action must be commenced within the earlier of the time during which the foreign judgment is effective in the issuing country or 15 years from the date the foreign judgment was rendered effective in the foreign country. Thus, foreign litigants should not sit on their rights if they believe the debtor has assets located in the US, or is likely to move assets into or through the US. Litigants should also be aware that the burden of proof rests with the party seeking to enforce the judgment. This requires the judgment-holder to be able to allege all of the mandatory factors cited above. Once the party seeking enforcement meets the burden of proof, however, the burden shifts to the party seeking to reject the enforcement to prove that any of the mandatory or discretionary grounds for non-recognition exist.
As one can see from all of the caveats and carve-outs, what may have begun as a simple exercise to enforce a foreign money judgment can quickly turn into complex litigation. For parties looking to enforce a judgment, it is imperative that they retain qualified counsel who can do the appropriate due diligence, make the proper allegations and choose the US state and method of enforcement that best benefits the client. It is equally important for parties looking to avoid enforcement of a foreign judgment in the US to retain qualified counsel who can raise the relevant objections to both the mandatory and discretionary factors to either avoid entry of judgment or, at least, slow the process down so that the parties can arrange a commercially acceptable agreement outside of court.
Jonathan Sablone is a partner at Nixon Peabody LLP. He can be contacted on +1 (212) 224 6395 or by email: email@example.com.
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