Dueling limitation periods: time-limit under the US Federal Arbitration Act trumped by state law on enforcement of foreign judgments

The US Court of Appeals for the District of Columbia Circuit rules that state law governing the limitation period for enforcing a foreign judgment that confirmed an arbitral award overrides the Federal Arbitration Act's limitation period on award enforcement.

On July 11, 2014, in the latest decision in the long-running dispute between Commission Import Export ("Commisimpex") and the Republic of Congo (the "Congo"), the US Court of Appeals for the District of Columbia Circuit[1] held that the three-year limitation period on enforcement of foreign arbitration awards specified by the US Federal Arbitration Act ("FAA") does not pre-empt the limitation period permitted by local state laws with respect to enforcement of foreign judgments confirming an arbitration award. Award creditors may therefore be able to enforce an award in the form of a foreign judgment after the limitation period for enforcement of the underlying award itself has passed.

Background

Commisimpex won an arbitration award against the Congo in a dispute concerning repayment of debt for public works in the 1980s (Paris seat, ICC Rules). The arbitration award was confirmed by the French courts in 2000 and survived a series of challenges. Nevertheless, Commisimpex' efforts to recover the amounts due under the award failed in France. Attempts to enforce against assets in Belgium and Sweden also failed.

In 2009, Commisimpex obtained recognition of the award from the English High Court which ruled that the award was enforceable in the same manner as a judgment (under section 101 of the 1996 Arbitration Act). In early 2010, the judgment (as a matter of English law) became final, conclusive and enforceable for a period of six years.

Commisimpex sought recognition and enforcement of the English judgment in the US District Court for the Southern District of New York in 2011 under New York's Uniform Foreign Country Money-Judgments Recognition Act.[2] The matter was transferred to the U.S. District Court for the District of Columbia. Commisimpex amended its complaint to recognize and enforce the English judgment under the D.C. Recognition Act which provides that an action to enforce a foreign-country judgment must begin before the judgment expires in the rendering country or within 15 years of its date of effectiveness. However, the district court dismissed the action in 2013 holding that the FAA's three-year limit on enforcement of foreign arbitral awards under section 207[3] preempted the longer period allowed under the D.C. statute for enforcement of foreign judgments. As the arbitral decision had been rendered in 2000, the three-year statute of limitations for enforcement of the arbitration award under the FAA had expired. Commisimpex appealed.

Decision on Appeal

The US Court of Appeals for the District of Columbia Circuit reversed the decision. While confirmation of an arbitral award is governed by federal law, recognition and enforcement of a foreign judgment is governed by state law. The court examined whether there was any incompatibility between the purpose of the FAA and the state law recognizing foreign money judgments. The court applied the preemption analysis from Hines v. Davidowitz[4] in a two-step test: "first, identifying the purposes of the federal statute; and second, determining what, if any, obstacles are posed by the challenged state law".

The court examined FAA Chapter 2 which implements the New York Convention, noting that the purpose of the convention and its implementing statute was to encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to standardize the enforcement of arbitral awards. The court was persuaded by Commisimpex' argument that section 207's "relatively demanding statute of limitations is tied to its relatively generous summary confirmation process" which sought "finality in the specific context of foreign award enforcement". Siding with the United States as amicus curiae, and prior decisions of the Second Circuit, the court found FAA Chapter 2 governs only enforcement of foreign arbitral awards and not foreign judgments. As a result, it did not preempt state laws governing the limitation period for enforcing foreign judgments confirming arbitration awards. The case was remanded to the district court with instructions to determine whether the English judgment is enforceable under D.C. law.

Conclusion

While the US Federal Arbitration Act governs the limitation period for confirmation of foreign arbitral awards, state law governs the limitation period for enforcing foreign court judgments that confirm those arbitration awards. Parties seeking enforcement of arbitration awards in the USA should be aware of this potential discrepancy: a more generous state law regime on enforcement of foreign judgments may be available if the three year time limit under the FAA has passed.

For further information, please contact Larry Shore, Partner, Robert Rothkopf, Associate, or your usual Herbert Smith Freehills contact.

[1] Commissions Imp. Exp. S.A. v. Republic of the Congo, 13-7004, 2014 WL 3377337 (D.C. Cir. July 11, 2014)

[2] N.Y. C.P.L.R. Article 53

[3] 9 U.S.C §207

[4] 312 U.S. 54 (1941)