I. The Use of the Public Policy Exception as a Basis for American Federal Courts Refusing to Enforce an Arbitral Award.
An American Federal Court will confirm a foreign arbitral award in accordance with the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards and 9 U.S.C. §§ 201-08 (2010) with minimal intrusion into the arbitral decision.1 There are, however a limited number of exceptions enumerated in the 1958 Treaty that permit a Federal court to vacate a foreign arbitral award, and these exceptions are incorporated into the relevant U.S. Federal statute.2 One of these exceptions states that an award may be vacated if it is contrary to the public policy of the United States.3
The legal standard for determining whether a foreign arbitral award should be vacated as against state public policy under Article V(2)(b) of the treaty is a strict one:
The United States Court of Appeals interprets Article V(2)(b) narrowly, to apply to ‘situations where the contract as interpreted by the arbitrators would violate some explicit public policy that is well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests’ . . . [and] ‘enforcement would violate our most basic notions of morality and justice.’ (internal citations omitted). 4
I have been unable to find any court opinion that vacated a foreign arbitral award on these grounds, and at least one Federal district court decision has speculated that none exists.5
In Karen Maritime Ltd. v. Omar Int’l Inc., the district court judge engaged in a thoughtful and comprehensive discussion of the history of the public policy exception to the enforcement of foreign arbitral awards. He noted that the Second Circuit Court of Appeals has upheld the confirmation of foreign arbitral awards in several cases notwithstanding claims of forgery, 6 inconsistent testimony in legal proceedings, 7 the severance of diplomatic relations with Egypt, 8 and the contravention of implicit U.S. trade policies with Iran.9
Furthermore, district courts in the Second Circuit have upheld foreign arbitral awards where a petitioner attempted to invoke the public policy exception based on claimed violations of due process,10 the misapplication of Ukrainian law,11 inappropriate trade with Cuba,12 arbitrator reliance on personal information not in the record,13 a failure to apply the relevant contract by an arbitrator,14 a claimed violation of the doctrine of laches,15 the confirmation of an award over a contrary Pakistani Judgment,16 the manifest disregard of American and British law,17 and a requirement that an award be paid in gold.18
However, at least one court has refused to compel arbitration in accordance with the 1958 Convention by invoking the public policy exception embodied in Article V(2)(b) of the treaty. In Thomas v. Carnival Corporation, the plaintiff and former employee attempted to bring a suit for slip-and-fall damages in Florida state court, but the defendant-corporation removed the case to Federal court and successfully argued that arbitration, rather than judicial litigation, was required in compliance with the contractual agreement and the 1958 treaty.19
The United States Court of Appeals for the Eleventh Circuit reversed the district court’s decision and invoked the public policy exception in refusing to compel arbitration.20 The court found that Federal precedent only dictated deference to arbitration where U.S. law would be applied or there would be an opportunity for review at a later stage in the case since the Supreme Court stated in Vimar Seguros y Reaseguros v. M/V Sky Reefer that arbitration cannot act as a “prospective waiver of parties’ rights to pursue statutory remedies” without the assurance of a “subsequent review.”21
Therefore, it seems that where an international agreement containing a mandatory arbitration clause calls for a foreign forum and the application of foreign law so that U.S. Federal remedies are not available, a U.S. Federal court in the Eleventh Circuit will not compel arbitration.22
In summation, it seems unlikely that a U.S. Federal court would vacate a foreign arbitral award on the grounds that it is contrary to public policy. The only circumstance where the public policy exception has been successfully invoked is under Eleventh Circuit jurisprudence, and only where a party was attempting to compel international arbitration, rather than attempting to enforce an arbitral award.
II. Federal Court Refusal to Enforce American Arbitral Awards on the Basis of a Public Policy Exception Under the Federal Arbitration Act.
In the previous section I discussed the enforcement of foreign arbitral awards in American courts. In this section of the memorandum, I discuss situations in which American Federal courts have refused to enforce American arbitral awards on the grounds that the award is contrary to public policy.
Under the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (2010), courts have a limited role when asked to review the decision of an American arbitrator and are unauthorized to reconsider the merits of an award unless the award is contrary to public policy.23 The legal standard for determining whether an award is contrary to public policy is a strict one:
A court’s refusal to enforce an arbitrator’s interpretation of such contracts is limited to situations where the contract as interpreted would violate ‘some explicit public policy’ that is ‘well defined and dominant, and is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests (emphasis in original).24
In Newsday, Inc. v. Long Island Typographical Union, the Second Circuit vacated an arbitral award as contrary to public policy because the award reinstituted an employee who had been discharged for sexually harassing female co-workers.25 The court vacated the award because it was in clear contravention of an explicit Federal statute and therefore against public policy, namely Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-2(a)(1).26
In DiRussa v. Dean Witter Reynolds, Inc., the Second Circuit noted that other circuits had only vacated arbitral awards “to prevent conduct that is particularly harmful to society and egregious in nature, such as when the conduct required by the award would jeopardize public health and safety.”27 While acknowledging that awarding attorney’s fees can be good policy and a strong deterrent to employment discrimination, the court confirmed the arbitral award that excluded the prevailing party’s attorney’s fees.28
Thus, while there is one precedent for vacating an American arbitral decision in Federal court, it is unlikely that a Federal court would take that course of action unless the award endangers the public welfare of the United States by contravening the explicit mandate and policy of a Federal statute.
III. Public Policy Considerations As Applied to the Enforcement in the United States of Foreign Court Judgments.
Foreign judgments and foreign judicial proceedings are governed by principles of comity in American courts and are usually recognized and enforced.29 However, there are certain circumstances in which American courts will refuse to recognize a foreign judgment. In the seminal case of Hilton v. Guyot, the United States Supreme Court articulated the standard for determining when a foreign judgment should be recognized:
[T]he merits of the case should not, in an action brought in this country upon the judgment, be tried afresh, as on a new trial or on appeal, upon the mere assertion of the party that the judgment was erroneous in law or in fact…. [I]f there has been opportunity for a full and fair trial abroad before a court of competent jurisdiction, conducting the trial upon regular proceedings, after due citation or voluntary appearance of the defendant, and under a system of jurisprudence likely to secure an impartial administration of justice between the citizens of its own country and those of other countries, and there is nothing to show either prejudice in the court, or in the system of laws under which it was sitting, or fraud in procuring the judgment, or any other special reason why the comity of this nation should not allow it full effect.30
Most American states adopted some form of the Uniform Foreign Country Money-Judgments Recognition Act of 1962 (“UFCMJR”) that states, “[a] foreign judgment will not be recognized if…the cause of action on which the judgment is based is repugnant to the public policy of the state.”31 The Restatement (Second) of Conflict of Laws echoes this sentiment, specifically adopting the language from Hilton and the UFCMJR while explicitly stating that “[e]nforcement of a foreign nation judgment can be resisted, in among other ways, on the ground…that the underlying cause of action was contrary to the public policy of the state of the forum.”32
Before a party can enforce a judgment from a foreign country in the United States, the judgment must be recognized by the jurisdiction in which the party seeks to enforce it.33 It is at this stage, where a party seeks to have its foreign court judgment recognized, that the judgment might be invalidated on public policy grounds. However, once a judgment is recognized, a court will not refuse to enforce the judgment solely on grounds of public policy.34
However, the public policy exception is a narrow one.35 Therefore, where the claim for relief on which the judgment is based upon is repugnant to the public policy of a jurisdiction the foreign judgment need not be recognized.36
In interpreting the New York state version of the UFCMJR in Sarl Louis Feraud International v. Viewfinder, the Second Circuit discussed the public policy exception to the general recognition of foreign judgments.37 In the Sarl Louis case, Plaintiffs had previously brought an action in French courts claiming that they had been injured by the unauthorized use of intellectual property. They obtained a default judgment.38 They later sought to have the judgment recognized in New York.39
The New York State statute regarding the recognition of foreign judgments stated, “[a] foreign country judgment need not be recognized if…the cause of action on which the judgment is based is repugnant to the public policy of this state.”40 After analyzing the underlying cause of action, the Second Circuit concluded that the French intellectual property code on which the judgment was based was analogous to U.S. Federal copyright laws.41 Prior to addressing the public policy issue, the Second Circuit, citing to Hilton, explained that a foreign default judgment could not be collaterally attacked as erroneous in fact or in law.42
At the outset the court noted that the public policy exception to the New York state statute should be invoked rarely, only where the judgment is “vicious, wicked, or immoral and shocking to the prevailing moral sense,”43 and “mere divergence from American procedure does not render a foreign judgment unenforceable.”44 The court stated that only in the clearest cases should a court refuse to recognize a foreign judgment based on public policy.45
The defendants had argued that the French intellectual property codes in question were in conflict with the First Amendment.46 However, the court found that copyright protections generally create tensions with the First Amendment given that individuals are not free to express themselves fully if they are using the expressions of others, but that tension is reconciled in the U.S. copyright laws by the fair use doctrine.47 The court agreed that “laws antithetical to the First Amendment will…be found to be ‘repugnant’ to public policy.”48
The Second Circuit then remanded the case to the district court to develop a record in order to determine whether there was an analog to the fair use doctrine in the French intellectual property code and whether it is sufficiently similar to the U.S. fair use formulation.49 The court found that if a similar free speech safeguard existed in the French code then the judgment would be enforced, otherwise the foreign judgment would be regarded as contrary to the First Amendment and therefore void.50
In a similar case, Matusevitch v. Telnikoff, the District Court for the District of Columbia refused to recognize a British judgment on the grounds that British libel laws were contrary to the public policy of the state of Maryland and the First Amendment. When discussing the Matusevitch decision at a later date, the District of Columbia Circuit Court of Appeals highlighted the fact that both the substantive law and burden of proof in British defamation law were substantially different from their American analogs, and those differences were “rooted in historic and public policy differences concerning freedom of the press and speech.”51
In TermoRio S.A. E.S.P. v. Electranta S.P., the Court of Appeals for the District of Columbia Circuit explored the relationship between foreign arbitral awards and foreign money judgments.52 A contractor had obtained an arbitral award against a public utility in Colombia, but the award was set aside by the highest administrative court in Colombia. The contractor then tried try to enforce the award in the United States based upon the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The court held that the Colombian arbitral award should not be enforced notwithstanding the 1958 convention because the public policy favoring arbitration was insufficient to be deemed repugnant to the fundamental notions of morality given that courts will typically respect the decisions of foreign courts.
Other cases indicate that on occasion a conflict of law issue will be presented where there is a choice of either applying a state’s own version of the UFCMJR, another state’s version, or the Federal standard enunciated in Tahan. A court sitting under diversity jurisdiction often will not concern itself with this choice because the standards are all essentially equivalent and produce the same outcome.
However, in McCord v. Jet Spray International Corp., a Massachusetts district court was forced to make a ruling on the choice of law issue because the Massachusetts statute had an additional reciprocity requirement not found in the UFCMJR.53 The judge decided that under the Erie doctrine, a court sitting in diversity should apply the state statute governing foreign money judgments in spite of concerns regarding U.S. foreign relations.54 Applying the reciprocity requirement of the Massachusetts state statute, the judge found that the country at issue (Belgium) would recognize a U.S. judgment, thereby satisfying the reciprocity requirement.55
In Jaffe v. Accredited Surety & Casualty, the Court of Appeals for the Fourth Circuit dealt with the public policy exception with respect to Virginia’s version of the UFCMJR as a matter of first impression.56
The plaintiff in this case, Sidney Jaffe, jumped bail in Florida on criminal charges and fled to Canada where bail bondsmen hunted him down.57 He brought an action in Canadian court claiming that the defendants had kidnapped him and illegally transported him to Florida for trial.58 Jaffe won a default judgment in the Canadian proceeding and recognition of that default judgment in the state of Virginia was the issue before the Fourth Circuit.59
After analyzing relevant, but inconsistent Virginia state precedents,60 the Fourth Circuit certified to the Virginia Supreme Court the question of whether Mr. Jaffe’s claim was contrary to general Virginia precedent refusing to allow fugitives to profit from their own wrongdoing. The issue that the Fourth Circuit framed was:
Is the claim for relief that forms the basis for the Canadian default judgment in favor of Sidney Jaffe and against [defendants] repugnant to the public policy of Virginia, such that the judgment need not be recognized pursuant to the Foreign Country Money-Judgments Recognition Act.61
Based on the Fourth Circuit decision, it as least arguable that a foreign money judgment will not be recognized where the party has “unclean hands” regarding the underlying cause of action.
Another case, Clarkson Co. v. Shaheen stands for the proposition that the money judgments of foreign nations with legal systems similar to the United States will almost certainly be recognized by American courts.62 In the Clarkson case, the Second Circuit had to determine whether a Canadian bankruptcy judgment could be collaterally attacked in an American court where plaintiffs claimed that the Canadian proceeding contravened the public policy of New York favoring forum selection clauses and disfavoring contractual assignments for the purpose of litigation.63 In rejecting these arguments the court stated, “[t]hese exceptions [i.e., public policy] are construed especially narrowly when the alien jurisdiction is, like Canada, a sister common law jurisdiction with procedures akin to our own.”64
In conclusion, it seems unlikely that an American court would refuse to recognize and enforce a foreign court’s award of a money judgment. Only where a judgment is repugnant to the general sense of a state’s morals and policy will an American court refuse to recognize the foreign judgment. This generally means that only where a judgment “tends clearly to undermine the public interest, the public confidence in the administration of the law, or security for individual rights of personal liberty or of private property” will an American court refuse to recognize it.65 The most successful applications of the public policy defense to enforcement arise where a foreign cause of action threatens to limit American constitutionally-protected rights, or fails to account for safeguards found in American statutes. Procedural variances between American and foreign courts will rarely be sufficient to invalidate a judgment on public policy.
See 9 U.S.C. § 201 (“The Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958, shall be enforced in United States courts in accordance with this chapter.”); 9 U.S.C. § 207 (“The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.”); Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-17 (1974).
See generally Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958), Article V; 9 U.S.C. § 207.
See id. Article V(2)(b) (“The recognition or enforcement of the award would be contrary to
the public policy of that country.”); Mitsubishi Motors Corp v. Soler-Chrysler-Plymouth, Inc., 473 U.S. 614, 638 (1985).
Karen Maritime Ltd v. Omar Int’l Inc., 322 F. Supp. 2d 224, 226 (E.D.N.Y. 2004) quoting Banco de Seguros del Estado v. Mutual Marine Office, Inc., 344 F.3d 255, 264 (2nd Cir. 2003) and Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310, 315 (2nd Cir. 1998).
See id. at 227 (“Respondent Omar therefore encourages this Court . . . to be the first court in this jurisdiction, and possibly any American jurisdiction, to refuse to confirm a foreign arbitral award on the basis of Article V(2)(b) of the Convention.”).
Europcar Italia, 156 F.3d at 315.
Waterside Ocean Navigation Co. v. Int’l Navigation Ltd., 737 F.2d 150, 152 (2nd Cir. 1984).
Parson & Whittemore Overseas Co. v. Societe Generale de L’Industrie du Papier, 508 F.2d 969, 973-74 (2nd Cir. 1974).
MGM Prods. Group v. Aeroflot Russian Airlines, 91 Fed. Appx. 716, 718 (2nd Cir. 2004).
Int’l Standard Elec. Corp. v. Hart Enters. Int’l, Inc., v. Bridas Sociedad Anonima Petrolera, 745 F. Supp. 172, 181 (S.D.N.Y. 1990).
Ukrvneshprom State Foreign Econ. Enters. v. Tradeway, Inc., 1996 WL 107285, at *6 (S.D.N.Y. Mar. 12, 1996).
Belship Navigation, Inc. v. Sealift, Inc., 1995 WL 447656, at *6 (S.D.N.Y. July 28, 1995).
Matter of Avraham, Shigur Express, Ltd., 1991 WL 177633, at *3 (S.D.N.Y. Sept. 4, 1991).
Jamaica Commodity Trading Co. v. Connell Rive & Sugar Co., 1991 WL 123962, at *5 (S.D.N.Y. July 3, 1991).
A. Halcoussis shipping Ltd. v. Golden Eagle Liberia Ltd., 1989 WL 115941, at *5 (S.D.N.Y. Sept. 27, 1989).
American Constr. Mach. & Equip. Corp. v. Mechanised Constr. Of Pakistan Ltd., 659 F. Supp. 426, 429 (S.D.N.Y. 1987).
Brandeis Intsel Ltd. v. Calabrian Chems. Corp., 656 F. Supp. 160, 169 (S.D.N.Y. 1987).
Konkar Indomitable Corp. v. Fritzen Schiffsagentur und Bereederungs GmbH, 1981 U.S. Dist. LEXIS 9637, at *8-9 (S.D.N.Y. May 1, 1981).
573 F.3d 1113 (11th 2009).
Id. at 1124.
515 U.S. 528, 540 (1995).
Thomas, 573 F.3d at 1123-24.
See 9 U.S.C. § 9 (“[A]t any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award, and thereupon the court must grant such an order unless the award is vacated, modified, or corrected . . .”); Newsday, Inc. v. Long Island Typographical Union, No. 915, CWA, AFL-CIO, 915 F.2d 840, 844 (2nd Cir. 1990) (“[C]ourts have a limited role when asked to review the decision of an arbitrator . . . Courts are not authorized to reconsider the merits of an award . . . Nevertheless, a court may refuse to enforce an arbitrator’s award . . . if the award is contrary to public policy.”) citing United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 36 (1987).
Newsday, Inc., 915 F.2d at 844 quoting United Paperworkers Int’l Union, 484 U.S. at 43; see also DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 824-25 (1997) (“The party seeking to prevent enforcement of the award must ‘clearly show’ a violation of public policy”) quoting United Paperworkers Int’l Union, 484 U.S. at 43.
915 F.2d at 845.
Id.
121 F.3d at 824 citing Iowa Elec. Light & Power Co. v. Local Union 204, 834 F.2d 1424, 1425, 1428 (8th Cir.1987).
Id.
See Victrix Steamship Company, S.A. v. Salen Dry Cargo A.B., 825 F.2d 709, 713 (2nd Cir. 1987).
Hilton v. Guyot, 159 U.S. 113, 202-03 (1895).
UFCMJR § 4(b)(3); see e.g., Fl. Stat. Ann. § 55.604 (“Recognition and Enforcement”) (2005).
Restatement (Second) of Conflict of Laws § 98 (“Recognition of Foreign Nation Judgments), cmt. g (“Defenses”); see also Restatement (Second) of Conflict of Laws § 117 (“Original Claim Contrary to Public Policy of State Where Enforcement Is Sought”), cmt. c (“Foreign Nation Judgments”).
See e.g., Matusevitch v. Telnikoff, 877 F. Supp. 1, 2 (D.D.C. 1995) (holding British law unenforceable on public policy grounds because British libel standards ran contrary to the libel laws of the state of Maryland and the U.S. Constitution).
Id.
See e.g., Ackermann v. Levine, 788 F.2d 830, 842 (2nd Cir. 1986) (“A judgment is unenforceable as against public policy to the extent that it is repugnant to fundamental notions of what is decent and just . . . The standard is high, and infrequently met.”).
Id.
489 F.3d 474.
Id. at 476.
Id.
Id. at 478 quoting N.Y.C.P.L.R § 5304(b) (emphasis in original).
Id. at 479.
Id.
Id. at 479 quoting Sung Hwan Co. v Rite Aid Corp., 850 N.E.2d 647 (N.Y. 2006).
Id. quoting Pariente v. Scott Meredith Literary Agency, Inc., 771 F. Supp. 609, 616 (S.D.N.Y. 1991). But see Maersk, Inc. v. Neewra, Inc., No. 05 Civ. 4356(CM), at *10-14 (S.D.N.Y. July 9, 2010) (holding Kuwaiti judgments unenforceable for numerous procedural deficiencies including no discovery, no testimony under oath, no jury, and factual findings were made by a “legal expert” and not a judge).
Sarl Louis Feraud International, 489 F.3d at 480.
Id.
Id.
Id. citing Yahoo!, Inc. v. La Ligue Contre Le Racisme et L’Antisemitisme, 169 F.Supp.2d 1181, 1189-90 (N.D. Cal. 2001) (holding French judgment unenforceable under law prohibiting Nazi propaganda as violating First Amendment policy).
Sarl Louis Feraud International, 489 F.3d at 483.
Id. at 484.
Society of Lloyd’s v. Siemon-Netto, 457 F.3d 94, 102 (D.C. Cir. 2006) quoting Telnikoff v. Matusevitch, 702 A.2d 230, 248 (Md. 1997)
487 F.3d 928 (D.C. Cir. 2007).
874 F.Supp. 436 (D. Mass. 1994). A reciprocity requirement mandates that only the judgments of foreign states who would recognize a U.S. judgment will be recognized.
Id. at 438.
Id. at 439.
294 F.3d 584 (4th Cir. 2002) quoting Va. Code Ann. § 8.01-465.10(B)(3)(same as UFCMJR).
Id. at 587.
Id.
Id.
Id. at 594 (stating that “the Supreme Court of Virginia has denied relief when ‘the very illegal act to which the plaintiff consented and in which she participated produced the injuries and damages of which she complains” but “Virginia’s highest court has held that this principle does not bar recovery if the plaintiff’s unlawful act is not the direct cause of his injuries) comparing Zysk v. Zysk, 404 S.E.2d 721, 722 (Va. 1990), with Godbolt v. Brawley, 463 S.E.2d 657, 659-60 (Va. 1995).
Jaffe v. Accredited Surety & Casualty Co., 294 F.3d at 597.
544 F.2d 624 (2nd Cir. 1976).
Id. at 626-27.
Id. at 629-30.
Ackermann v. Levine, 788 F.2d at 841.
