Overview
Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. In this update, we take a look back at 2024 and note some issues to watch in 2025. Last year there were significant developments in arbitration law and in the interpretation of the US Foreign Sovereign Immunities Act (FSIA), as well as judgment enforcement in the UK. We summarize and highlight those developments below. For 2025, we will continue to watch the US Supreme Court's treatment of several issues of note, as well as the progress of the Crystallex litigation, as major developments are expected in the coming year. We look forward to continuing our updates on the first Tuesday of every month in 2025.
Arbitration
2024 included significant developments in the area of arbitration law. Highlights include the following:
- A court must determine arbitrability where two contracts exist between the parties and conflict exists on the issue of arbitrability. Coinbase v. Suski, 602 US __ (2024). See our FTU on this here.
- When a court grants a motion to compel arbitration, if a party requests a stay, the case must be stayed and not dismissed. Smith v. Spizzirri, 601 US __ (2024). See our FTU on this here.
- The exemption to arbitration in FAA § 1 for transportation workers is dependent on the work someone does, not the industry in which they work. Bissonnette v. LePage Bakeries Park St., LLC, 601 US __ (2024). See our FTU on this here.
- An award issued under a bilateral investment treaty is commercial, falling under the New York Convention, and not sovereign, which would be outside the scope of the treaty, as modified by the US. Zhongshan Fucheng Industrial Investment Co. Ltd v. Federal Republic of Nigeria, No. 23-7016, 2024 WL 3733341 (DC Cir. Aug. 9, 2024) (but see Judge Kastas’ dissent on this point). See our FTU on this here.
- A federal judge in DC ruled that there is a statute of limitations for enforcing an International Centre for Settlement of Investment Disputes (ICSID) arbitral award. The conventional view on this point has long been straightforward: there is no such statute of limitations. The ICSID Convention does not limit the time period for enforcing awards, nor does it explicitly allow contracting parties to apply their own limitation periods. The US statute implementing its duties under the Convention, 22 U.S.C § 1650a, does not include one either. However, in a 2024 decision, the court held that the absence of a statute of limitations means that federal courts must find one by analogy. Titan Consortium 1, LLC v. Argentine Republic, No. 21-CV-2250, 2024 WL 3858821 (D.D.C. Aug. 19, 2024). That approach is somewhat common for actions such as 42 U.S.C. § 1983 claims, but has not conventionally been applied to ICSID claims. The opinion does not seem to focus on the United States' treaty obligations. Fortunately for investors, Judge Cobb concluded that the most analogous statute of limitations is the District of Columbia's 12-year period to bring an action to recognize a judgment.
In addition to these case highlights, the Second Circuit weighed in on discovery in aid of international proceedings and whether Section 1782 permitted discovery in aid of an ICSID case in Webuild S.P.A. v. WSP USA Inc., No. 23-73, 2024 WL 3463380, at *1 (2d Cir. July 19, 2024). The Second Circuit found WeBuild could not obtain discovery and affirmed the quashing of WeBuild's subpoena. The court's ruling turned on the US Supreme Court's recent ruling in ZF Automotive US Inc. v. Luxshare Ltd., which held that § 1782 "authorizes discovery orders only for use in proceedings before foreign or international tribunals that exercise governmental or intergovernmental authority." The court found that ICSID was not a "governmental or intergovernmental authority," and thus WeBuild could not seek discovery from the engineering firm in aid of arbitration. In short, WeBuild was unable to show that member states intended to "imbue [ICSID] tribunals with governmental authority." See our FTU on this here.
On August 12, 2024, Steptoe partner Steven Davidson was quoted in a Law360 article "2nd. Circ. Opinion May Moot Discovery Statute For Arbitration." The article discusses how the Second Circuit has narrowed the scope of the foreign discovery statute, Section 1782 of the US Code, ruling that federal courts cannot demand discovery for arbitration before ICSID. This follows a 2022 US Supreme Court ruling that the statute only applies to governmental or intergovernmental adjudicative bodies. The court rejected the argument that ICSID carries sufficient governmental authority.
Davidson said: "I think the Second Circuit took its cue from the Supreme Court. Although [the justices] didn't resolve the precise ICSID question, they gave a pretty strong signal that unless somebody was very clearly imbued with government authority, they didn't think it was enough to qualify under their standard of what constitutes a foreign or international tribunal under 1782. In other words, they created a very high bar to get over." Read the full article at Law360 (subscription may be required).
FSIA
This past year saw several opinions regarding the FSIA. Our full First Tuesday Updates on these issues can be seen here.
The DC Circuit decided Exxon Mobil Corp. v. Corporacion CIMEX, S.A., No. 21-7127 (D.C. Cir. Jul. 30, 2024). Steptoe has had the distinction of representing Exxon in this matter. Exxon involves claims against certain Cuban state-owned corporations that are "trafficking" in property that the Cuban regime confiscated from Exxon in violation of the Helms-Burton Act. Exxon argued that the commercial activity exception applied to CIMEX's trafficking activities – including operating service stations on the confiscated land that process remittance transactions from the United States and sell goods imported from the United States – because this conduct was commercial activity that had a direct effect in the United States. The district court ruled in Exxon's favor. The DC Circuit substantially agreed. Exxon also contained a notable dissent from Judge Randolph, who reasoned that the court did not need to consider direct effcts (or the FSIA as a whole) at all. Looking to a recent line of cases from the US Supreme Court and DC Circuit, Judge Randolph noted that the Helms-Burton Act itself abrogates sovereign immunity because it expressly authorizes lawsuits against agencies and instrumentalities of foreign states. While the majority did not agree, Judge Randolph's opinion provides a cogent explanation for why the FSIA may not always be the "sole" basis by which plaintiffs can obtain US jurisdiction over sovereigns. Exxon filed a cert petition in the US Supreme Court and we will see what 2025 brings on this issue.
The DC Circuit employed a similar "direct effects" analysis in EIG Energy Fund XIV v. Petroleo Brasilerio, S.A. There, an American investment fund lost $221 million after it invested in a project to exploit newly discovered oil reserves off the coast of Brazil because of an allegedly fraudulent scheme employed by the project’s sponsor, Petrobras. Affirming the denial of Petrobras' motion for summary judgment on sovereign immunity grounds, the DC Circuit, as it did in Exxon, focused on the fact that Petrobras "specifically targeted" American investment. Before reviewing the evidence, the court cautioned that "targeting" is not the "touchstone" of the analysis and that direct effects can be proved in other ways. The evidence of targeting included Petrobras preparing lists of potential US investors and pitching the investment at two conferences hosted and attended by US investors. The court further reasoned that it was of no moment that the conferences were held in Brazil and attended by non-American investors because it was still clear that Petrobras contemplated and tried to attract US investment.
Decided only a few weeks after EIG Energy, Wye Oak v. Republic of Iraq provides a useful contrast with Exxon and EIG Energy. In Wye Oak, the plaintiff argued that the commercial activity exception applied to its claims that Iraq breached a contract by failing to pay plaintiff for certain work done refurbishing military equipment. Specifically, the plaintiff argued – and the district court agreed – that Iraq's breach had direct effects in the US, including: halting the development of certain software, disrupting certain expansion plans in the US, and impacting US diplomatic relations with Iraq. However, the DC Circuit disagreed. A central focus of the court's decision was that the dispute concerned a breach of contract. Thus, in contrast with Exxon and EIG Energy, the court's analysis focused heavily on the situs of the contractual relationship – i.e., on where the contract was formed, where it was principally performed, and where payment was (or was not) made – to assess whether the breach of contract had direct effects on the United States.
In TIG Insurance Company v. Republic of Argentina, the DC Circuit examined the reach of the FSIA's arbitration exception, which, in relevant part, abrogates immunity for claims against sovereigns seeking to confirm an award made pursuant to an arbitration agreement. In TIG, an insurance company sued the Republic of Argentina – as the successor-in-interest to an Argentine company called Caja – for breach of certain reinsurance contracts made between TIG and Caja. Caja had become insolvent and through a series of decrees Argentina had assumed all of Caja’s contractual liabilities.
After obtaining a default judgment, TIG attempted to execute on the judgment in Washington, DC, but Argentina obtained a dismissal on sovereign immunity grounds. Reversing the district court's ruling, the DC Circuit concluded, among other things, that the agreement to arbitrate was "made by" Argentina even though Argentina had not actually signed the reinsurance contracts. Drawing on "ordinary principles of contract law," the court explained that Argentina was a successor to Caja and had assumed Caja's legal obligations. Thus, Argentina had sufficiently "made" the agreement such that it was subject to the exception.
The DC Circuit's treatment of sovereign immunity continued a week later with another chapter in the long-running saga of whether or not intra-EU investment arbitration awards are enforceable. In NextEra Energy Glob. Holdings B.V. v. Kingdom of Spain, No. 23-7031, 2024 WL 3837484 (DC Cir. Aug. 16, 2024), decided alongside two companion cases raising similar issues, the DC Circuit unanimously rejected sovereign immunity claims by applying the arbitration exception but split on an appeal of a defensive anti-suit injunction (sometimes known as an anti-anti-suit injunction), with the majority overturning an injunction against anti-suit proceedings in the plaintiffs' home jurisdictions. The court held that Spain had consented to arbitrate by signing the Energy Charter Treaty for the benefit of investors of other signatories. Slip Op. at 24-25. Whether intra-EU investors were actually covered by that consent to arbitrate was "an argument regarding the scope" of the provision, "not its existence." Id. at 25. So, the court held, the arbitration exception applied and US courts have jurisdiction. Id.
In addition, the Supreme Court held argument on one important FSIA case and granted cert in another.
Crystallex Litigation
We have covered, and will continue to cover, the long-running Crystallex litigation. Many of our First Tuesday Updates about Crystallex can be reviewed here. We expect to issue more updates in 2025. This case concerns whether, and under what terms, the Delaware court will allow a judicial sale of the Venezuelan state-owned oil company PDVSA’s stock in PDVH, the principal asset of which is CITGO.
On February 20, 2024, the New York Court of Appeals held that "Venezuelan law governs the validity of the notes under Uniform Commercial Code § 8-110 (a) (1)," but “New York law governs the transaction in all other respects, including the consequences if a security was 'issued with a defect going to its validity' (UCC 8-202 [b] [1]-[2])." Petróleos de Venezuela S.A. v. MUFG Union Bank, N.A., No. 6, 2024 WL 674251, at *1 (N.Y. Feb. 20, 2024) (PDVSA III). Litigation in the Southern District of New York continues on the validity of the bonds. That is one set of creditors that will have an impact on the judicial sale of PDVSA's stock in PDVH pending before Judge Stark in the District of Delaware, typically referred to as the Citgo sale, see Crystallex International Corporation v. Bolivarian Republic of Venezuela, No. 17-mc-151, D. Del. (Crystallex).
Judge Stark has issued a number of key decisions in 2024, from denying the special master's motion to enjoin certain creditors from pursing alter ego claims in other courts to rescheduling and altering the auction procedures for the Citgo sale. After the special master's initial recommended bid by affiliates of the Elliot Group was rejected by just about all participants, the court has rescheduled the judicial sale for July 2025, reopened the data room, and encouraged a stalking horse bid. The court will permit any interested parties to exceed the stalking horse bid.
Judge Stark also refused to enjoin other creditors that have brought alter ego lawsuits in other jurisdictions seeking to pierce the veil between PDVSA and PDVH. Those suits will continue and are expected to reach trial in 2025.
Supreme Court Cases in 2025
In 2024, the Supreme Court heard oral argument in Republic of Hungary v. Simon, No. 23-867. The case – which has been pending for over 14 years and has been the subject of multiple appeals – involves claims brought by survivors or heirs of survivors of the Hungarian Holocaust "seeking to represent the thousands of other surviving victims and heirs of victims of the Hungarian Holocaust." Plaintiffs have relied on the "expropriation exception" to the FSIA in prosecuting this case. The main issues before the court are (1) whether historical commingling of assets suffices to establish that proceeds of seized property have a commercial nexus with the United States under the expropriation exception to the FSIA; (2) whether the Claimant must make out a valid claim that an exception to the FSIA applies at the pleading stage, rather than merely raising a plausible inference; and (3) whether a sovereign defendant bears the burden of producing evidence to affirmatively disprove that the proceeds of property taken in violation of international law have a commercial nexus with the United States under the expropriation exception. The Supreme Court will rule in the next term and the Steptoe team is monitoring the case closely and will provide another update as the case progresses.
The court also granted certiorari over a pair of cases – CC/Devas(Mauritius) Limited, et al. v. Antrix Corp. Ltd. et al., No. 23-1201 (U.S. Oct. 4, 2024) and Devas Multimedia Private Ltd. v. Antrix Corp. Ltd., No. 24-17 (U.S. Oct. 4, 2024) (the "Devas cases") related to the enforcement of an arbitral award and whether a plaintiff must demonstrate that a foreign sovereign has "minimum contacts" with the US before a federal court may assert personal jurisdiction over foreign states sued under the FSIA. The Ninth Circuit had reversed enforcement of the award on the grounds that the District Court incorrectly held that it did not have to determine whether an India-owned corporation had minimum contacts with the US. Petitioners argued that the Ninth Circuit's approach to the minimum contacts test conflicts with decisions from other circuits. Oral argument is set for March 3, 2025, and the Steptoe team is monitoring this case closely and will provide another update as the case progresses.
UK
2024 also included some key developments in the UK. On June 27, 2024, the United Kingdom ratified the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the Convention). The Convention provides a framework for the enforcement of English judgments in the European Union (except Denmark), as well as in Ukraine and, as of October 1, 2024, Uruguay and vice versa. Various other countries, including the United States, Russia and Israel, have signed the Convention, but have yet to ratify it (so it is not in force in those jurisdictions yet). This development is particularly welcome in the post-Brexit context.
Currently, litigants seeking to enforce English judgments in the European Union (EU) often need to navigate local enforcement rules, resulting in extra costs and uncertainty. The Convention, which is due to come into force in England and Wales on July 1, 2025 (Scotland and Northern Ireland having been excluded by declaration), should bring about much-needed consistency and reassurance for litigants before the English courts that enforce judgments in the European Union as part of their international enforcement strategy, as well as parties from European Union states considering enforcement actions in England.
This past year the Commercial Court has shone renewed light on the difficulties that arise when seeking to enforce in England a US judgment involving an award of multiple damages. In the long-running Motorola v. Hytera litigation, the US court entering damages against Hytera had doubled the compensatory award rather than arriving at a specific punitive damages number. Accordingly, since the award was one of "multiple damages," it was unenforceable under UK law. As we advised in these updates, parties in US litigation should consider carefully the scope of their claims in circumstances where it is anticipated that England will feature heavily in any subsequent enforcement strategy (for example, because the defendant has significant assets in England.) Claimants should therefore consider structuring their US claims to avoid seeking multiple damages altogether, either by pursuing claims only under statutes that do not provide for multiple damages, or by explicitly asking the US court not to award multiple damages under statutes that do.
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We are looking forward to 2025 and hope you are too. If you have any questions about enforcing your judgment, please reach out to us.
