Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement.
This month, we look at three practical tips to improve your dispute resolution provision should you need to enforce an arbitral award. When parties select arbitration, they typically focus their attention on the arbitration agreement (rules, location, procedures, etc.) but often neglect to consider including provisions to help enforce an award. In the United States, most parties include the Federal Arbitration Act's (FAA) standard language from Section 9 that "[i]f no court is specified in the agreement of the parties, then such application [for confirmation] may be made to the United States court in and for the district within which such award was made." This month, we suggest that you include provisions selecting a particular venue and consenting to personal jurisdiction in that forum for enforcing an award; appointing an irrevocable agent to accept service of process for enforcement purposes; and contractually agreeing to a post-judgment interest rate.
1. Consent to Personal Jurisdiction and Venue—Select a Forum for Enforcing an Award
Parties often neglect to consider enforcing an award—commonly failing to select a forum for converting the award into a judgment, even though in the non-arbitration context, these issues are almost always explicitly addressed in dispute resolution provisions.
This omission can present real issues as courts require award-creditors to establish personal jurisdiction and venue over the award-debtor to enforce the award. See, e.g., Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 863 F.3d 96, 124–25 (2d Cir. 2017); Compania de Inversiones Mercantiles, S.A. v. Grupo Cementos de Chihuahua S.A.B. de C.V., 970 F.3d 1269, 1292 (10th Cir. 2020); Conti 11. Container Schiffarts-GMBH & Co. KG M.S., MSC Flaminia v. MSC Mediterranean Shipping Co. S.A., 91 F.4th 789, 795 n.3 (5th Cir. 2024); First Inv. Corp. of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742, 748 (5th Cir. 2012). Other courts have entertained forum non conveniens challenges. See, e.g., Monegasque Du Reassurances v. Nak Nafogaz of Ukraine, 311 F.3d 488 (2d Cir. 2002). Regardless of your view of these decisions, parties can control this issue through proactive drafting of dispute resolution clauses.
It is true that the FAA includes a venue provision. Section 9 of the FAA provides: "If no court is specified in the agreement of the parties, then such application [for confirmation] may be made to the United States court in and for the district within which such award was made." Similarly, Section 10 provides: "[T]he United States court in and for the district wherein the award was made may make an order vacating the award. . ." However, assets are not always where the arbitration took place nor is it always the best creditor-friendly, judgment enforcement venue.
Therefore, under the FAA, the parties can agree on a venue that is enforcement-focused—meaning a jurisdiction where assets are available and/or there are strong judgment-creditor remedies. Once a judgment has been obtained, registering a state court judgment in another state court or a federal court judgment in another judicial district is a ministerial process. See here.
We suggest including provisions in your agreements that both consent to personal jurisdiction and venue for enforcement of an arbitral award in which you select forums where enforcement can proceed. Such consent could materially streamline enforcement and eliminate procedural hurdles.
2. Appoint Domestic Agents for Service of Process on Foreign Individuals or Entities
Relatedly, converting a commercial arbitral award into a judgment often requires commencing a plenary action—including service of process. More and more disputes involve international arbitration and when an award-debtor is "not within any judicial district of the United States," service of process can be arduous. Whether through the Hague Convention on Service, letters rogatory, pursuant to a foreign country’s law, or other means, the process is fraught with peril and delay. These issues can become even more pronounced if the award-debtor is a foreign sovereign or an agent, or instrumentality of a foreign sovereign. See, e.g., Saint-Gobain Performance Plastics Eur. v. Bolivarian Republic of Venezuela, 23 F.4th 1036, 1042 (D.C. Cir.), cert. denied, 143 S. Ct. 113, 214 L. Ed. 2d 28 (2022) (finding improper service on Venezuela under Hague Convention after company served process on Venezuela's Central Authority, which did nothing with the papers, despite requirement to serve its Attorney General under Venezuelan law). Here too, proactive drafting can streamline the process.
For private individuals or corporate entities in a foreign country, we recommend that dispute resolution provisions appoint an agent within the United States to accept service on behalf of the foreign award-debtor for purposes of enforcing an award. "[P]arties to a contract may agree in advance to the jurisdiction of a given court, to permit notice to be served by the opposing party, or even to waive notice altogether." National Equipment Rental, Ltd. v. Szukhent, 375 U.S. 311, 315 (1964). The United States Court of Appeals for the Second Circuit found proper service of process where the dispute resolution provision specifically allowed service by mail on a party's representative. Doctor's Associates, Inc. v. Distajo, 107 F.3d 126, 136 (2d Cir. 1997). We recommend appointing the agent within the United States so that you will be able to serve process efficiently without resort to foreign methods—we have noted that issues can arise if a foreign agent is selected but that foreign country does not permit service in that way.
When it comes to serving process on foreign sovereigns and their agents and instrumentalities, the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1608, expressly authorizes parties to enter into a private arrangement. The FSIA governs service of process on a foreign sovereign or its agents and instrumentalities and provides that service of process may be accomplished "in accordance with any special arrangement for service" between plaintiff and the foreign state and its agents or instrumentalities. Id. Successfully serving a foreign government can be difficult; a contractual provision provides a pragmatic approach.
In all circumstances, we recommend appointing an irrecoverable agent for service of process. Personal service or process upon an irrevocably designated agent constitutes proper service even if the other party tried to terminate the agent or stopped paying the fees. By agreeing to a method of service in a contract, a defendant "waive[s] its right to other service of process[.]" Mastec Latin Am. v. Inepar S/A Industrias E Construcoes, No. 03 CIV 9892 (GBD), 2004 WL 1574732, at *3 (S.D.N.Y. July 13, 2004); see also Exp.-Imp. Bank of the U.S. v. Asia Pulp & Paper Co., No. 03 CIV 8554 (LTS), 2005 WL 1123755, at *4–5 (S.D.N.Y. May 11, 2005).
3. Set Post-Judgment Interest Rate in Dispute Resolution Provision
Arbitral panels often set post-award interest rates that are higher than the federal post-judgment statutory interest rate. (The federal rate floats until it is set at the date of judgment and is currently at 5%. See here.) But, courts hold that the FAA requires application of the federal post-judgment statutory rate after an arbitral award is converted to a judgment. See Westinghouse Credit Corp. v. D’Urso, 371 F.3d 96, 100 (2d Cir. 2004); Bayer CropScience AG v. Dow Agrosciences LLC, 680 F. App’x 985, 1000 (Fed. Cir. 2017); Chevron TCI, Inc. v. Capitol House Hotel Manager, L.L.C., No. 22-30271, 2023 WL 5664105, at *7 (5th Cir. Aug. 31, 2023); Walker v. Life Ins. Co. of N. Am., 59 F.4th 1176, 1194 (11th Cir. 2023); Fid. Fed. Bank, FSB v. Durga Ma Corp., 387 F.3d 1021, 1024 (9th Cir. 2004). (It should be noted, however, that ICSID awards should be treated differently since the recognition of such awards are governed by separate treaty and statute in the US, though the law on this issue is unsettled.).
But these same courts also hold that private parties have "the ability . . . to set their own rates through contract." Westinghouse Credit Corp., 371 F.3d at 101; Bayer CropScience AG, 680 F. App’x at 1000 ("To overcome this presumption [that the federal rate for post-judgment enforcement applies], courts have required the parties or arbitrators to unambiguously express their intent to replace the federal rate for the post-judgment period."); Chevron TCI, Inc., 2023 WL 5664105, at *7 ("Parties can agree to a different rate, but they "must do so using clear, unambiguous, and unequivocal language."); Walker, 59 F.4th at 1195 ("The majority approach is to require that parties use "clear, unambiguous and unequivocal" contractual language to displace § 1961 and specify some other post-judgment interest rate."); Cent. States, Southeast & Southwest Areas Pension Fund v. Bomar Nat’l, Inc., 253 F.3d 1011, 1020 (7th Cir. 2001) ("It is well established that parties can agree to an interest rate other than the standard one contained in 28 U.S.C. § 1961.").
Since enforcing an arbitral award, or any judgment, can take time, parties would be wise to mitigate some of the delay by expressly setting by contract the post-judgment interest rate to apply to a judgment post-confirmation. In so doing, the parties should be explicit that they are agreeing to a particular interest rate pre- and post-judgment.
In sum, taking note of enforcement issues when drafting dispute resolution provisions as part of an agreement to arbitrate can help make the difference between a paper victory and a real monetary recovery.
