In Devas, the Ninth Circuit found that award creditors looking to enforce arbitration awards against foreign states and their agencies must prove, in addition to the personal jurisdiction requirements of the Foreign Sovereign Immunities Act (FSIA), that the award debtor has minimum contacts with the United States.[1] The Ninth Circuit is the only federal appeals court to require the minimum contacts test for personal jurisdiction over a foreign state.
This note examines the Ninth Circuit’s decision and highlights its relevance to individuals and entities looking to collect on arbitration awards in the United States. Shearman & Sterling regularly advises clients on how best to enforce and execute on international arbitration awards in the U.S. and other jurisdictions.
Devas v. Antrix
Factual Background
In 2005, Devas Multimedia Private Ltd., an Indian telecommunications company, and Antrix Corp. Ltd., a commercial division of India’s Department of Space, entered an agreement to build, launch, and manage telecommunication satellites. In 2011, Antrix terminated the agreement, and Devas initiated ICC arbitration as provided for in the parties’ agreement.[2] Antrix initially refused to participate in the arbitration and declined to nominate an arbitrator.
In 2015, the ICC tribunal issued a final award concluding that Antrix had wrongfully repudiated the agreement and awarded Devas US $562.5 million, plus interest. Devas sought to enforce the award in New Delhi, while Antrix filed a petition to set aside the award in a different court in India. While the Indian proceedings were pending, Devas filed a petition to confirm the award in the District Court for the Western District of Washington, where Antrix has business relationships.[3]
Procedural History and Creation of a Circuit Split
Foreign states are immune from suit in the United States unless one of the enumerated exceptions to the Foreign Sovereign Immunity Act (“FSIA”) applies. As such, the FSIA provides the sole basis for jurisdiction over a foreign sovereign in U.S. courts. To this end, the statute provides that personal jurisdiction “shall exist” over a foreign state when (i) service is proper,[4] and (ii) the claims fall within one of the exceptions to sovereign immunity.[5] In Devas, the parties did not contest that Antrix qualified as a “foreign state” under the FSIA,[6] that service was proper, or that Devas’ claims fell under the arbitration exception to sovereign immunity. Nonetheless, Antrix challenged personal jurisdiction, arguing that in addition to the FSIA’s requirements, it should be entitled to the protection of the Due Process Clause of the Fifth Amendment to the U.S. Constitution and that it did not possess the requisite “minimum contacts” for personal jurisdiction.[7]
On October 27, 2020, the District Court confirmed the arbitration award and rejected Antrix’s personal jurisdiction arguments, concluding that because Antrix is “wholly owned and controlled by a foreign state[,] the Due Process Clause does not apply and statutory personal jurisdiction under FSIA is all that is required.”[8] It also noted that even if Antrix was entitled to due process protection, it would have had personal jurisdiction because Antrix possessed the requisite “minimum contacts” with the United States and had “purposefully availed itself of the privilege of conducting business activities in the United States” through its long-term negotiations with a Virginia-based consulting firm which resulted in establishing Devas and in the execution of the parties’ agreement.[9] On the merits, the District Court found no basis under the New York Convention to refuse recognition and entered a judgment confirming the $562.5 million award plus pre- and post-award interest.[10] Antrix appealed the decision.
In January 2022, the District Court granted the motion filed by intervenor companies related to Devas to register the judgment in the Eastern District of Virginia, determining that a reasonable period time had elapsed since the entry of judgment under 28 U.S.C. § 1610(c) and finding good cause for registration in the Eastern District of Virginia, since Antrix was owed funds by a U.S. company in bankruptcy proceedings there.[11]
The Ninth Circuit reversed the District Court’s decisions on August 1, 2023, holding that the District Court erroneously concluded that a minimum contacts analysis was unnecessary to exercise personal jurisdiction over a foreign state.[12] It found that the District Court was bound by the Ninth Circuit’s 1980 decision in Thomas P. Gonzalez Corp. v. Consejo Nacional De Produccion De Costa Rica (“Gonzalez”), which held that personal jurisdiction under the FSIA “requires satisfaction of the traditional minimum contacts standard.”[13] In Gonzalez, the plaintiff relied on the commercial activity exception to sovereign immunity,[14] which “denies sovereign immunity when the action is based ‘upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.’”[15] The Ninth Circuit reasoned that the minimum contacts test was required because “[t]he words ‘direct effect’ . . . have been interpreted as embodying the minimum contacts standard. . . and the requirement that the defendant purposefully avail itself of the privilege of conducting business within the forum.”[16] It also concluded that the reach of the FSIA “does not extend beyond the limits set by the International Shoe line of cases” (which define the minimum contacts requirements), because the legislative history of the FSIA states, “[t]he requirements of minimum jurisdictional contacts and adequate notice are embodied in [28 U.S.C. § 1330(b)]” and cites International Shoe Co. v. Washington, 326 U.S. 310 (1945).[17]
The reasoning underlying the Gonzalez decision was subsequently called into doubt when the Supreme Court in Republic of Argentina v. Weltover, Inc.[18] suggested that foreign states should be treated the same as domestic states, meaning no due process protection.[19] Despite the Supreme Court’s position, the Ninth Circuit concluded that the Gonzalez decision was not “clearly irreconcilable” with Weltover[20] because the Supreme Court only hinted at how it might rule on the issue and that the Ninth Circuit’s minimum-contacts inquiry in Gonzalez was based on a statutory interpretation of the FSIA and its legislative history, not on the Constitution. [21] Of the three-judge panel, two judges signed on to a concurring opinion, in which they cast doubt on the application of the minimum contacts test in Gonzalez, stating that it “has no foundation in the Constitution or the FSIA, and it is contrary to the views of other courts of appeals” and noting that “[i]n an appropriate case, we should reconsider it en banc.”[22]
The Ninth Circuit also concluded that the District Court erred in finding Antrix had the requisite minimum contacts with the United States, concluding instead that Antrix’s series of meetings in the United States were insufficient because they were not purposeful but “random, isolated, or fortuitous” and the relevant agreement between the parties was negotiated outside of the US, executed in India, and did not require Antrix to conduct any activities or create ongoing obligations in the United States.[23]
Interestingly, in the time between the District Court’s decisions and the Ninth Circuit’s ruling, the award was set aside in India. This fact could have disposed of the case, as courts in the United States typically will not enforce a foreign arbitral award that was set aside by a court of competent jurisdiction unless the party seeking enforcement can demonstrate serious irregularities in the underlying set-aside procedure.[24] Although Antrix moved for limited remand to allow the District Court to address the set-aside, the Ninth Circuit chose to decide the appeal, reversed the District Court’s judgment on personal jurisdiction grounds, and denied the remand motion as moot.[25]
Devas requested a rehearing of the Ninth Circuit’s personal jurisdiction decision en banc. On February 6, 2024, the Ninth Circuit declined to rehear the case without providing its reasoning and directed that it would not entertain any further petitions for rehearing.[26] Although the rehearing petition did not “receive a majority vote of the non-recused active judges in favor of en banc consideration,” the court was far from unanimous in its support of the Gonzalez decision. Indeed, six judges dissented, arguing that the court should, as a whole, overturn the “dubious [Gonzalez] precedent” in which the panel “rewrote” the FSIA “to add a minimum-contacts requirement.”[27] The dissent explained that “nothing in the Due Process Clause mandates our statutory interpretation” and that FSIA’s text does not require minimum contacts.[28] It further warned that Gonzalez’s “atextual reading creates a needless roadblock for plaintiffs seeking to assert their rights against foreign states and their agents,” while concluding that the refusal to rehear the case en banc was a “serious mistake.”[29]
On February 12, 2024, Devas and its shareholders petitioned the Ninth Circuit to stay the issuance of its mandate in this case in order to allow them to file a writ of certiorari to the U.S. Supreme Court. The Ninth Circuit’s decision is a significant departure from all other federal circuits that have considered the issue.[30] The D.C. Circuit, Second Circuit, and Seventh Circuit have all recognized foreign states are not entitled to the Due Process Clause minimum contracts inquiry.[31]
Impact on Award Creditors Enforcing Arbitration Awards Against Foreign States
To enforce an arbitration award in the United States against a “foreign state” (including a political subdivision, or an agency or an instrumentality of a foreign state),[32] the award creditor must establish personal jurisdiction over the foreign state. The FSIA provides that such jurisdiction is established by (1) properly effecting service, and (2) proving that one of the exceptions to sovereign immunity applies—typically, the arbitration or waiver exceptions.[33] In most jurisdictions in the United States, this is the end of the personal jurisdiction inquiry for “foreign states.”
In light of the Devas decision, award creditors seeking to enforce an arbitral award against a “foreign state” in the federal courts within the Ninth Circuit (i.e., Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, or Washington[34]), must not only meet the FSIA’s statutory requirements, but also prove that the “foreign state” has minimum contacts with the United States, “such that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice.”[35] To satisfy this test, the award creditor would need to show that:
- The “foreign state” purposefully directed its activities or consummated some transaction with the United States or a resident thereof; or performed some act by which it purposefully availed itself of the privilege of conducting activities in the U.S., “thereby invoking the benefits and protections of its law,” and
- The claim arises out of or is related to those U.S.-related activities.”[36]
The ease with which an award creditor can make these showings will vary depending on the facts and circumstances of a particular case.
The broader impact of the Devas decision is yet to be determined. Under the FSIA, the federal courts of the District of Columbia are the default forum for actions against a foreign state (or state entity), unless the foreign state has consented to jurisdiction in another court.[37] As such, the number of enforcement actions that are likely to arise in the courts of the Ninth Circuit may be limited.
At a minimum, where an award creditor has the option to seek enforcement within the courts of the Ninth Circuit, that creditor will now have to consider whether it can meet the additional jurisdictional requirement established in Devas or whether it would prefer to enforce the award in the District of Columbia (or some other appropriate jurisdiction). Once the award is enforced and a judgment entered, the award creditor could, for purposes of executing on assets, seek to have that judgment recognized by other courts under the Constitution’s Full Faith and Credit clause.
Typically, having a judgment issued by one U.S. federal court recognized by another U.S. federal court under the Full Faith and Credit clause is a straightforward process. The Devas decision, however, could create a complication for parties seeking to have a judgment issued by a court outside the Ninth Circuit recognized by a court within the Ninth Circuit. Since the Ninth Circuit is the only Circuit to impose a constitutional minimum contacts test to determine if personal jurisdiction exists over a foreign state, it is likely that the court that recognized the arbitration award against the foreign state would not have considered whether minimum contacts were present.
One of the limited grounds for refusing to give full faith and credit to a judgment of a U.S. court is where the court issuing the judgment did not have proper jurisdiction. Although the reviewing court generally will apply the law of the state or district where the judgment was issued to determine if jurisdiction existed, there are at least two federal courts that have applied precedent from other jurisdictions.[38] Moreover, it does not appear that the precise question that would be at issue in this scenario has been tested–namely, where the court that issued the judgment found that jurisdiction existed using a standard that was expressly rejected by controlling appellate precedent in the reviewing court’s circuit. As such, there is a chance that a foreign state could challenge the application of full faith and credit on the grounds that the court which recognized the arbitration award against the foreign state did not consider whether minimum contacts were present and, thus, did not properly establish that it had personal jurisdiction over that state.
Shearman & Sterling has extensive experience representing foreign and domestic companies and states in enforcement of international arbitration awards in the United States and other jurisdictions and remains at the disposal of those considering enforcement actions.
