News

News

Fifth Circuit Court of Appeals Affirms Dismissal of Petition to Confirm Foreign Arbitration Award for Lack of Personal Jurisdiction

On December 21, 2012, the United States Court of Appeals for the Fifth Circuit issued its decision in First Investment Corporation of the Marshall Islands v. Fujian Mawei Shipbuilding, Limited, et al., holding that a court may dismiss a petition to confirm a foreign arbitration award for lack of personal jurisdiction under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") implemented in 9 U.S.C. §§ 201, et seq
 
Petitioner-Appellant, First Investment Corporation of the Marshall Islands ("First Investment"), appealed an Order from the United States District Court for the Eastern District of Louisiana which granted Defendants' motion to dismiss for lack of personal jurisdiction.  The underlying dispute arose out of a series of shipbuilding contracts between First Investment and Defendants Fujian Shipbuilding Industry Group Corp. ("FSIGC") and Fujian Mawei Shipbuilding Ltd. ("Mawei") (collectively, the "Fujian Entities"), both Chinese companies.  First Investment alleged that the Fujian Entities breached the contracts by refusing to honor an option agreement.  Pursuant to a contractual arbitration clause, First Investment successfully pursued arbitration in London against the Fujian entities, and was ultimately awarded USD 26 million in damages by the arbitration panel.  Thereafter, First Investment commenced a confirmation proceeding on May 27, 2009 in the United States District Court for the Eastern District of Louisiana against the Fujian Entities, as well as The People's Republic of China ("PRC").  The District Court ultimately granted the Fujian Entities' motion to dismiss for lack of personal jurisdiction.  In the same order, the District Court dismissed First Investment's petition against Defendant PRC for lack of subject matter jurisdiction.
 
On appeal, First Investment did not contend that the District Court had personal jurisdiction over the Fujian Entities.  Instead, First Investment argued that: 1) the Fujian Entities, as foreign entities with no contacts in the United States, were not entitled to the protections of the Fifth Amendment's Due Process Clause; 2) personal jurisdiction is not a valid defense under the New York Convention; and 3) the Fujian Entities were alter egos of the PRC, a foreign state over which personal jurisdiction was not required.  The Fifth Circuit considered First Investment's arguments in turn and affirmed the District Court's judgment in all respects.
 
The Fifth Circuit first rejected First Investment's argument that foreign entities that are neither present nor have property in the United States are not entitled to due process protections, finding no support for this proposition in current case law.  In fact, the Fifth Circuit noted that the U.S. Supreme Court had recently reaffirmed that foreign corporations are entitled to due process protections, regardless of whether they have contacts with the United States.  See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011).  Thus, the Court ruled that there was no basis to conclude that a party's status as a foreign entity permits a court to ignore personal jurisdiction or exercise such jurisdiction without first establishing sufficient contacts between the defendant and the forum state.
 
First Investment next argued that a party against whom confirmation of a foreign arbitral award is sought under the New York Convention cannot raise a personal jurisdiction defense.  First Investment further observed that an action to confirm an award under the New York Convention is a summary proceeding that does not impact a defending party's rights and thus it is unnecessary for a court to have personal jurisdiction.  The Fifth Circuit, in accordance with every circuit to have considered the issue (i.e. Second, Third, Fourth, Seventh and Eleventh Circuits), found that although the New York Convention does not list personal jurisdiction as a ground for denying enforcement, the Due Process Clause requires that a court dismiss an action, on motion, over which it has no personal jurisdiction.  The Fifth Circuit confirmed personal jurisdiction to be an essential element of a district court's jurisdiction, without which the court is powerless to proceed.  Accordingly, the Court held that a district court is not relieved of its responsibility to enforce constitutional protections which safeguard a party from appearing in a forum with which it has no contacts.  In addition, the Fifth Circuit rejected First Investment's arguments that confirmation proceeding does not affect a party's rights, noting that confirmation may result in a party losing the opportunity to raise defenses to enforcement that it might have raised at the confirmation stage.  Confirmation also allows a party, armed with a court judgment, to seek enforcement of the award as a foreign judgment elsewhere.
 
Finally, the court rejected First Investment's alternative argument that the Fujian Entities were alter egos of the foreign sovereign PRC, which would have rendered the need for personal jurisdiction moot as a foreign sovereign is not a "person" under the Fifth Amendment's Due Process Clause.

Read a copy of the Fifth Circuit's Decision

For more information about this case and how it may apply to specific facts and circumstances, please do not hesitate to contact us at info@chaloslaw.com.

Chalos & Co, P.C.
International Law Firm
www.chaloslaw.com
Email: info@chaloslaw.com

© 2016 Chalos & Co, P.C. Site by Webline Designs