Opinion ID: 783608
Heading Depth: 2
Heading Rank: 3

Heading: Immunity to Prejudgment Attachment Under FSIA

Text: 26 Section 1609 of the FSIA states: Subject to existing international agreements to which the United States is a party at the time of enactment of this Act the property in the United States of a foreign state shall be immune from attachment[,] arrest and execution except as provided in sections 1610 and 1611 of this chapter. 28 U.S.C. § 1609. In Stephens v. Nat'l Distillers and Chem. Corp., 69 F.3d 1226 (2d Cir.1995), we held that the posting of security required under New York Insurance Law § 1213(c) constituted the functional equivalent of a prejudgment attachment from which foreign sovereigns were immune. Id. at 1229, 1230. 27 Foreign states are immune from prejudgment attachment of their assets used for commercial activity in the United States, unless the foreign state has explicitly waived its immunity from attachment prior to judgment.... 28 U.S.C. § 1610(d)(1) (emphasis added). 28 Section 1610(d) does not require recitation of the precise words `prejudgment attachment' in order to waive immunity. S & S Mach. Co. v. Masinexportimport, 706 F.2d 411, 416 (2d Cir.1983) (citing Libra Bank Ltd. v. Banco Nacional de Costa Rica, 676 F.2d 47, 49-50 (2d Cir.1982)). Rather, a waiver of immunity from prejudgment attachment must be explicit in the common sense meaning of that word: the asserted waiver must demonstrate unambiguously the foreign state's intention to waive its immunity from prejudgment attachment in this country. Id. at 416. 29 In Libra Bank, the defendant, a Costa Rican bank, issued four promissory notes, each waiving any right or immunity from legal proceedings including suit judgment and execution on grounds of sovereignty.... 676 F.2d at 49. This was held to be an explicit waiver of immunity under § 1610(d) because, although the words prejudgment attachment were not mentioned, the waiver demonstrated a clear and unambiguous intent to waive all claims of immunity in all legal proceedings. Id. 30 In contrast, in S & S Mach. Co., a statement in a trade agreement prohibiting State owned parties from claiming or enjoying immunities from suit or execution of judgment or other liability ... was not a waiver of immunity from prejudgment attachment under § 1610(d). 706 F.2d at 417. We found that the waiver of immunity from suit and execution had no bearing on the issue of prejudgment attachment. Id. We also held that immunity from other liability was ill-suited to encompass prejudgment attachments. Id. 31 The arbitration clause of both Umbrella Agreements at issue provided that [t]he arbitrators shall consider this Treaty an honourable engagement rather than merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law.  (emphasis added). Courts have read such clauses generously, consistently finding that arbitrators have wide discretion to order remedies they deem appropriate. 32 In Pac. Reins. Mgmt. Corp. v. Ohio Reins. Corp., 935 F.2d 1019 (9th Cir.1991), the Ninth Circuit held that an arbitral panel may order pre-hearing security in the form of an escrow account where the arbitration clause states, as here, that the arbitrators are relieved of all judicial formalities and may abstain from following the strict rules of law. Id. at 1025. Several district courts have agreed that such language confers a wide spectrum of powers on arbitral panels, including the power to award pre-hearing security. See, e.g., British Ins. Co. of Cayman v. Water St. Ins. Co., 93 F.Supp.2d 506, 516 (S.D.N.Y. 2000) (citations omitted) (confirming an arbitration panel's interim order requiring reinsurer to post security before arbitration hearing); St. Paul Fire & Marine Ins. Co. v. Eliahu Ins. Co. Ltd., 96 Civ. 7269, 1997 WL 357989, at , 1997 U.S. Dist. LEXIS 8916, at  (S.D.N.Y. June 26, 1997) (reading such language as enabling arbitrators to be free to disregard New York substantive law). 33 Concededly, the arbitration clause here did not explicitly authorize the arbitrator to order a letter of credit as security against a possible final award. However, in a separate clause of the Umbrella Agreement, titled Unearned Premium and Loss Reserves, Banco agreed to apply for and secure delivery to [MMO] a clean irrevocable Letter of Credit issued by a bank acceptable to such Insurance Department in an amount equal to [Banco's] proportion of said reserves. [A-36] This clause inarguably demonstrates that the parties embraced the usefulness of letters of credit as the means of securing their respective rights and obligations and as a means of facilitating the transaction generally. Yasuda Fire & Marine Ins. Co. of Europe Ltd. v. Cont'l Cas. Co., 37 F.3d 345, 350 (7th Cir.1994). 34 As such, even if the FSIA applied to arbitration — which we do not decide — we find that the Umbrella Agreements satisfied the explicit waiver requirement of § 1610(d).