Opinion ID: 6498714
Heading Depth: 3
Heading Rank: 2

Heading: The enforceability standard after Pemex

Text: As summarized above, the New York Convention generally obligates U.S. courts sitting as a secondary jurisdiction to enforce arbitral awards rendered in a signatory state. Article V of the Convention lists seven exceptions to that obligation. If an exception applies, the secondary jurisdiction “may” choose not to enforce the award. One such exception exists when the award “has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” N.Y. Convention art. V(1)(e). In Pemex, we clarified that the “set-aside” exception articulated in article V—although important—should not be understood as an invitation to a relaxed exercise of impressionistic discretion. Rather, the comity that U.S. courts owe to foreign judgments remains a vital prudential concern. See Pemex, 832 F.3d at 106. In accordance with this concern, Pemex looked to the established standard in U.S. courts for declining to enforce foreign judgments and applied that standard to the context of petitions to enforce awards that have been set aside. See generally, e.g., Restatement (Fourth) of the Foreign Relations Law of the United States § 484 (2018) voluminous material by both parties beyond the pleadings suggests that the parties understood that the court was not adjudicating a typical Rule 12(b)(6) motion. 25 (“[A] court in the United States need not recognize a judgment of a court of a foreign state if . . . the judgment or the claim on which the judgment is based is repugnant to the public policy of . . . the United States[.]”). The standard is a demanding one. Accordingly, Pemex teaches that a district court should enforce an award that was set aside in the primary jurisdiction—and thereby deny comity to the relevant foreign judgment—only if the judgment setting aside the award can be properly characterized as “repugnant to fundamental notions of what is decent and just” in the United States, in which case reliance on the judgment would be contrary to U.S. public policy. 832 F.3d at 106 (quoting Ackermann v. Levine, 788 F.2d 830, 841 (2d Cir. 1986)); see also Thai-Lao, 864 F.3d at 176 (explaining that Pemex “carved out a ‘public policy’ exception to the comity principle for occasions when enforcing [a set-aside award] is needed ‘to vindicate “fundamental notions of what is decent and just” in the United States’” (quoting Pemex, 832 F.3d at 107)). This is the standard that courts in this Circuit are now bound to apply. The Pemex decision went on to describe “four powerful considerations” that guided its application of this standard under the circumstances of that case. Pemex, 832 F.3d at 107 (“The high hurdle of the public policy exception is surmounted here by . . . (1) the vindication of contractual undertakings and the waiver of sovereign immunity; (2) the repugnancy of retroactive legislation that disrupts contractual expectations; (3) the need to ensure legal claims find a forum; and (4) the prohibition against government expropriation without compensation.”). But those aspects of the Pemex analysis did not reduce the applicable standard to a four-factor formula that courts must—or necessarily even should—apply in every case involving set-aside arbitral awards. Rather, the prudential concern of international comity was “surmounted” in the circumstances presented in Pemex by four particular considerations that may or may not be relevant to other petitions seeking enforcement of a set-aside award. Id. 26 Although the relevant considerations will vary with the context of an enforcement petition, in no event should the Pemex standard be understood as easy to meet. On the contrary, we emphasized there that “[a]ny court should act with trepidation and reluctance in enforcing an arbitral award that has been declared a nullity by the courts having jurisdiction over the forum in which the award was rendered.” Id. at 111. The public policy exception to the principle of comity “does not swallow the rule: the standard is high, and infrequently met.” Id. at 106 (internal quotation marks and brackets omitted). To carefully balance “the goals of comity and res judicata” with “fairness to litigants,” courts being asked to enforce a set-aside arbitral award must evaluate whether the judgment that set aside the award “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.” Id. (quoting Ackermann, 788 F.2d at 841–42). In the absence of a clear adverse effect on these fundamental public policy concerns, comity stands firmly as our guiding value. B. Application of the Pemex enforceability standard Esso has not carried its burden under Pemex of showing that the Nigerian judgments partially setting aside the Award clearly contravene U.S. public policy. We thus affirm the district court’s discretionary decision to afford comity to the Nigerian Court of Appeal judgments and to decline to enforce the portions of the Award that those judgments set aside. We go no further than that, however: under the New York Convention, the district court was obligated to enforce the portions of the Award that the Nigerian Court of Appeal reinstated. We therefore vacate the district court’s decision insofar as it failed to ascertain and enforce the surviving portions of the Award. 27 1. The Nigerian judgments are entitled to comity We conclude that, on the present record, Esso has fallen short of its burden of showing that this is one of those rare cases presenting “extraordinary circumstances” that are repugnant to notions of justice in the United States. Pemex, 832 F.3d at 106 (internal quotation marks omitted). Although the district court interpreted the Pemex standard too narrowly by limiting its analysis substantially to the four factors considered there—not all of which are relevant to this case—we agree generally with its conclusion that the Nigerian court judgments are owed comity here. Questions may reasonably be raised regarding the correctness of the Nigerian appellate court’s legal conclusions, as well as the practical effect of its judgments, but our role in secondary jurisdiction is not to second-guess the Nigerian court’s substantive determinations made under Nigerian law. We assess that court’s rulings only so far as is required to ascertain whether they are plainly incompatible with U.S. notions of justice. See, e.g., Zeiler, 500 F.3d at 169 (“Confirmation under the Convention is a summary proceeding in nature, which is not intended to involve complex factual determinations, other than a determination of the limited statutory conditions for confirmation or grounds for refusal to confirm.”). Unrestrained by the four factors identified in Pemex, we turn to the assertions that Esso presses here in support of its petition: that the Nigerian court proceedings were “fundamentally unfair” and denied Esso due process, and that those proceedings have caused Esso to suffer “injustices much like those inflicted on the petitioners in Pemex.” Esso Br. at 47. Esso maintains that Nigerian courts have consistently denied it due process, arguing that those courts made results-oriented decisions designed to shield NNPC—and, by extension, the Nigerian government—from judgments awarding Esso damages for NNPC breaches. 28 In support, Esso submits first that the Nigerian trial court “ignored all of [its] arguments” in setting aside the Award. Petition ¶ 66, App. 143. But we are concerned with the Court of Appeal’s later judgments, not the trial court’s decisions. Esso does not—and cannot reasonably—contend that the Court of Appeal so baldly refused to consider its arguments in rendering decisions that partially reinstated the Award. Nor does Esso assert that it had an inadequate opportunity to be heard or endured some other glaring procedural defect before the Nigerian courts. Moreover, in contrast to the egregious retroactive application of new laws that occurred in Pemex, the Nigerian Court of Appeal’s judgments relied on Nigerian laws that were enacted either before the parties began their contractual relationship or before this dispute arose. Esso finds fault instead with the substance of the Court of Appeal’s decisions, emphasizing that the court ruled against it in all the ways that matter, effectively denying Esso any remedy even as the court reinstated those portions of the Award that held NNPC liable for breach of the PSC. Bearing in mind that we must use a light touch when considering substantive determinations under the law of the primary jurisdiction, see Pemex, 832 F.3d at 111, we do not agree that the Nigerian judgments are so facially deficient in their substantive analysis that they merit no respect. Although the outcome settled on by the Nigerian Court of Appeal is undeniably favorable to NNPC (and thus to Nigeria), the court’s opinions appear on their face to analyze the relevant issues rationally under Nigerian law. And the issues appear susceptible to reasonable disagreement: indeed, the Nigerian courts did disagree among themselves, with the Court of Appeal overturning the trial court’s unnuanced finding that the dispute submitted to arbitration was entirely a tax dispute. Rather, the appellate decisions plausibly differentiated between the portions of the Award that addressed a tax dispute and the (reinstated) portions that it found addressed a contractual dispute. Our analysis may go no further: it is simply not this court’s role to engage in a more probing analysis 29 of the substance of the Nigerian court’s judgments. See, e.g., Pemex, 832 F.3d at 108 (“[W]e are in no position to pass upon [the primary jurisdiction’s] interpretation of [foreign] law, or upon the sufficiency of its precedent.”); id. at 109 (“Whether the [foreign court] properly reasoned from [its] precedent is emphatically not for U.S. courts to say.”); Ackermann, 788 F.2d at 837 (“[A] final judgment obtained through sound procedures in a foreign country is generally conclusive.”). It is true, still, that the Nigerian Court of Appeal judgments may leave important questions unanswered. Most significantly, as we discuss further below, the record before us leaves unclear whether the Nigerian judgments eliminated all damages awarded to Esso, including amounts tied to the severable contract violations, as opposed to just the portion remedying the tax dispute. Esso suggests that the apparent wholesale denial of damages amounts to a government taking without due compensation. As the district court observed, it was NNPC’s overlifting of oil that deprived Esso of profit—an act that could be viewed as a taking of Esso’s property, one that enriched the Nigerian government through NNPC, its instrumentality. The U.S. Constitution generally requires compensation to the property owner when such a taking occurs. See, e.g., Brown v. Legal Found. of Wash., 538 U.S. 216, 235–36 (2003) (explaining that, under the Fifth Amendment Takings Clause, “the private party is entitled to be put in as good a position pecuniarily as if his property had not been taken” by the government (internal quotation marks omitted)). Cf. Pemex, 832 F.3d at 110 (concluding that “[t]he enforcement of a [new, retroactively applied] law” to shield a government agent from any liability “amounted a taking of private property without compensation for the benefit of the government” and was among factors warranting disregard of primary jurisdiction’s award nullification). In some circumstances, however, legitimate countervailing government interests may be considered in ordering payment of damages for interference with private 30 property rights. United States law imposes a range of rules and norms that can shield state-affiliated parties from damages obligations notwithstanding property rights violations. For example, the Eleventh Amendment bars a court from ordering a state to pay retrospective damages for a violation of federal law, even as it may allow prospective injunctive relief to redress the same violation. See Edelman v. Jordan, 415 U.S. 651, 664 (1974). Cf. Leitner v. Westchester Cmty. Coll., 779 F.3d 130, 134 (2d Cir. 2015) (explaining that “[t]he Eleventh Amendment generally bars suits in federal court by private individuals against non-consenting states,” and “immunity from suit” applies to “certain actions against state agents and instrumentalities.”); Ladd v. Marchbanks, 971 F.3d 574, 579 (6th Cir. 2020) (reasoning that states’ immunity extends to claims brought under the Takings Clause). Similarly, a declaratory ruling that NNPC violated Esso’s contractual rights could function as an appropriately remedial order providing prospective injunctive relief, even if the court does not order payment of damages for past takings. See, e.g., NNPC Br. at 12 (describing the Court of Appeal judgment in the set-aside action as “reinstating those terms of the Award that directed NNPC prospectively to operate the PSC in accordance with [Esso’s] lifting allocations” (emphasis added)). Under these circumstances, the outcome apparently contemplated by the Nigerian Court of Appeal may not be so different from—much less “repugnant” to—what the U.S. legal system might reach in some roughly analogous circumstances. Accordingly, we are unable to conclude from the face of the Nigerian appellate judgments that they “clearly” offend basic standards of justice in the United States. Esso submits that the judgments were not the result of legal reasoning under Nigerian law but were politically motivated decisions driven by the results desired. In support, Esso points to evidence drawn from other cases involving potential NNPC liability, contending, for example, that Nigerian courts have not ordered NNPC to pay damages to any international company in the last two decades. On this basis it argues 31 that, for purely political reasons, the Nigerian courts are generally unwilling to rule against the state and are especially unwilling to do so here. Esso urges us to reach the sweeping conclusion that the Nigerian judiciary is “incapable of providing [Esso] an impartial tribunal.” Esso Br. at 50. In further support of this general condemnation, Esso submitted written declarations by two experts: one, a former State Department official with expertise on Nigeria; the second, a retired justice of the Nigerian Supreme Court. The thrust of both declarations is that the political realities of the Nigerian judiciary generally result in flawed decision-making and specifically disadvantage international organizations seeking to hold the state liable. This argument sweeps too broadly to compel the outcome Esso desires here. See, e.g., Pemex, 832 F.3d at 108 (“We are concerned here with the effect of [the retroactively applied law in the primary jurisdiction] in these circumstances and upon these parties.” (emphasis added)). Evidence that a judicial system has no independence from the political arms of the state may be relevant to assessing the fairness of a particular private litigant’s treatment, as it was in Pemex. But broad, nonspecific evidence does not form an appropriate basis for a judicial conclusion in U.S. courts that a specific foreign judgment is necessarily repugnant to notions of justice in this country so as to require the abandonment of comity. Cf. In re Arbitration between Monegasque de Reassurances S.A.M. v. NAK Naftogaz of Ukraine, 311 F.3d 488, 499 (2d Cir. 2002) (“We have been reluctant to find foreign courts ‘corrupt’ or ‘biased.’”); Chesley v. Union Carbide Corp., 927 F.2d 60, 66 (2d Cir. 1991) (“It is not the business of our courts to assume the responsibility for supervising the integrity of the judicial system of another sovereign nation. Such an assumption would directly conflict with the principle of comity.” (internal quotation marks omitted)). Esso offers no specific evidence of unfairness toward it in the ongoing Nigerian litigation other than that the result thus far has 32 primarily favored NNPC and that results in most other Nigerian cases involving NNPC generally appear to have favored NNPC over international counterparties.15 Nonetheless, Esso submits that, because the Nigerian courts have prevented it from receiving any damages for NNPC’s breach (including through the trial court’s dismissal of Esso’s direct substantive action for breach of contract), there is no Nigerian forum in which it can obtain a remedy. But this argument is premature: the record shows that Esso is continuing to pursue damages or a tax refund for the overlifted oil in four ongoing proceedings in Nigeria. These include appeals from the two underlying Court of Appeal judgments (pending before the Supreme Court of Nigeria); an appeal from the trial court’s dismissal of Esso’s direct, substantive action (also pending before the Supreme Court); and Esso’s action in the Nigerian tax tribunal. That these proceedings are ongoing creates yet another barrier to concluding that Esso has been denied due process: it remains to be seen how the Nigerian courts will ultimately treat Esso and the Award. 16 Because at this juncture Esso has not clearly shown that the Nigerian judgments partially setting aside the Award are “repugnant to fundamental notions of what is decent and just in this country,” Pemex, 832 F.3d at 97 (internal quotation marks 15To the extent that other cases involving Nigerian state entities have any relevance to our task, we note in any event at least some evidence that the results of those cases are not quite so imbalanced as Esso portrays. See, e.g., Br. of Amici Curiae FIRS et al. at 11–13 (listing recent Nigerian court decisions ruling against NNPC and Nigerian state entities, including some judgments requiring Nigeria to pay tens of millions of dollars to non-Nigerian entities). 16In contrast, in Pemex, the petitioner’s claims had been wholly rejected by the Mexican courts based on “unforeseen changes in the law,” including a dramatically shortened statute of limitations period, and no related judicial proceedings were still pending. Pemex, 832 F.3d at 110. We concluded that the petitioner’s “inability to have its breach claims heard magnifie[d] the injustice” it faced in the primary jurisdiction. Id. So far as we are aware, Esso is not similarly foreclosed from participation in further proceedings, and its claims have not been entirely barred. 33 omitted), on the record before us, we are unconvinced that the district court abused its discretion in affording comity to those judgments. 2. The Award is enforceable in part Although the district court acted well within its discretion by extending comity to the Nigerian Court of Appeal judgments, we conclude still that the district court erred by failing to delineate and enforce those portions of the Award that those judgments reinstated. As described above, U.S. courts are generally bound to enforce an award that has not been set aside in the primary jurisdiction. See 9 U.S.C. § 207. Because no exceptions to enforcement apply with respect to the portions of the Award that the Nigerian Court of Appeal reinstated, it follows that the district court must enforce those portions of the Award. By failing to do so, the district court erred. Although we conclude this is the result the law requires, we acknowledge that the practical effect of this conclusion is unclear at this stage. The record consistently shows that the Nigerian judgments reinstated the requested declaratory relief, and so presumably affirmed the arbitral panel’s liability finding against NNPC. But the language of the Nigerian judgments is ambiguous in some respects: critically, we are unable to decipher whether those judgments set aside all damages that the Award found were payable to Esso—that is, the entire $1.8 billion Award, with interest accruing thereafter. For example, one of the judgments declared that it set aside “damages or compensation to [Esso] for the overlifting of crude oil cargoes in the amount that includes the PPT paid.” App. 749 (emphasis added). We are unable to determine whether the “amount” set aside refers to the entire damages award or only to “the PPT” (that is, the tax) portion of damages associated with the tax issue that the Court of Appeal deemed inarbitrable and severable. If the latter, then it is unclear what amount of damages was reinstated and therefore may be deemed payable in an enforcement order, to the extent that such an order is otherwise appropriate. At oral 34 argument in this Court, counsel for Esso reluctantly quantified the damages for overlifted tax oil alone as amounting to $1.5 billion of the $1.8 billion Award—leaving approximately $300 million in other damages—but we identify no support in the existing record for any precise numbers. We therefore remand the case to the district court to allow it to resolve these issues with the parties’ aid. The district court should engage in any additional factfinding and briefing it deems necessary or appropriate to clarify the effects of the Nigerian judgments. This task includes, at least, determining whether to order any partial damages payment by NNPC and, if so, in what amount and on what basis. After addressing these and any other remaining issues (and any new issues that may surface in time), the district court should fashion a partial enforcement order consistent with this Opinion and with its own additional findings. 17