Waving EU flags in front of European Commission in Brussels

In Micula v. Romania,[1] a D.C. district court judge recently enforced an investor-state arbitration award in a case brought by nationals of a European Union (“EU”) state against another EU state.  This is the first decision by a U.S. court concerning enforcement of an “intra-EU” investment treaty award since the European Court of Justice’s decision in the Achmea case[2] last year, which held that such awards are not enforceable.  Several cases seeking enforcement of intra-EU treaty awards are currently pending in U.S. courts.  However, because of the particular circumstances of the case, the Micula decision may provide little guidance as to whether such awards will be generally enforced in U.S. courts.

Background

In 1998, the Micula brothers, Swedish nationals of Romanian origin, began to take advantage of Romanian state incentives to invest in the food and beverage industry in that country.[3]  In 2004, Romania repealed the incentives as part of its accession to EU membership.[4]  In 2005, the Micula brothers and their entities brought an arbitration under the Sweden-Romania bilateral investment treaty, alleging damages to their businesses resulting from repeal of the incentives.  In December 2013, the arbitral tribunal convened under the rules of the International Center for the Settlement of Investment Disputes (“ICSID”) issued an award in favor of the Miculas in the amount of about $116 million, plus interest.[5]

The Miculas have had difficulties enforcing the award in Europe.  The European Commission (“EC”), the EU’s executive branch, has long taken the position that intra-EU investment treaties are incompatible with EU law.[6]  In 2015, the EC issued a decision that Romania’s payment of the award would constitute illegal state aid.[7]  While the Miculas’ appeal of that decision to the EU’s General Court was pending, the EU’s highest judicial body, the Court of Justice of the European Union (“CJEU”), ruled in the Achmea case in March 2018 that the EU Treaty precluded arbitration of intra-EU investment treaty disputes.[8]

However, on June 18, 2019, the General Court annulled the 2015 EC decision in the Micula case, distinguishing the CJEU’s Achmea decision on grounds that the Romanian measures challenged by the Miculas occurred before Romania became a member-state of the EU on January 1, 2007 and therefore the arbitral award in that case did not concern issues of EU law.[9]

On September 11, 2019, the D.C. district court, Judge Amit P. Mehta, issued an opinion granting enforcement in the Micula case and ordering judgment against Romania in the amount of $331,557,687.[10]

The Miculas are one of several investors from EU states that have sought to enforce their intra-EU investment treaty awards in U.S. courts,[11] notwithstanding the CJEU’s Achmea decision.

The Micula Decision

U.S. courts are permitted very limited review of ICSID awards, which are enforced in accordance with the ICSID Convention, rather than the New York Convention on Recognition and Enforcement of Arbitral Awards.[12]  Nevertheless, Romania raised four challenges to enforcement of the Micula award: “(1) the court lacks subject matter jurisdiction under the [Foreign Service Immunities Act (“FSIA”)], (2) it has fully satisfied the Award, (3) the act of state doctrine prohibits the Award’s enforcement, and (4) so, too, does the foreign sovereign compulsion doctrine.”[13]

As to subject-matter jurisdiction under the FSIA, the district court found it had jurisdiction under the FSIA’s arbitration exception.[14]  Romania argued the arbitration exception did not apply because the arbitration clause in the Sweden-Romania BIT had been rendered invalid by the Achmea decision.[15]  But the court held that Romania failed to carry its burden to show Achmea foreclosed the court’s jurisdiction because “the concern that animated Achmea—the un-reviewability of an arbitral tribunal’s determination of EU law by an EU court—is [not] present in this case.”[16]  Rather, since all of the challenged state actions occurred, and the arbitration commenced, before Romania became an EU member state, the tribunal did not have to interpret or apply EU law.[17]  The court thus adopted the reasoning of the General Court decision, which also distinguished Achmea on this basis.[18]

As to the act of state and foreign sovereign compulsion doctrines, the court held that the “original rationale for invoking these doctrines has been overtaken by events”—namely the General Court decision.[19]  The court was persuaded that pursuant to EU law, after the General Court’s decision, the EC could no longer “take any steps that would be incompatible with the Court’s findings” so Romania was not precluded from satisfying the award.[20]  The court noted that while the EC had appealed the General Court decision to the CJEU, the court was not willing to further delay the enforcement proceedings.[21]  The court also addressed, and dismissed, Romania’s claims that it had satisfied the award.

What the Decision Means For Other Enforcement Proceedings

There are at least six other intra-EU investment treaty enforcement proceedings, all against Spain involving claims brought under the Energy Charter Treaty, pending before the D.C. district courts before different judges.[22]  While the district court in the Micula case determined that Achmea did not preclude its jurisdiction, it relied heavily on the General Court’s determination that the challenged state conduct occurred before Romania joined the EU.  This is not the case in the other intra-EU awards with pending enforcement proceedings in U.S. courts.

In the other intra-EU cases, Spain (often joined by the EC as intervener) argued in the underlying arbitrations that Achmea precluded the arbitral tribunals from exercising jurisdiction but the tribunals disagreed, in part because they said that they were not applying EU law but rather public international law under the relevant treaty.[23]  In accordance with longstanding U.S. precedent, the district courts could determine that this issue cannot be re-litigated at the enforcement stage.[24]

Also, the investors in the other U.S. enforcement proceedings have argued an additional basis for subject-matter jurisdiction under the FSIA not raised in the Micula case:  that a state waives its immunity to enforcement of an ICSID award under the FSIA when it becomes a signatory to the ICSID Convention.[25]  Thus, this separate basis for jurisdiction has not been addressed and provides another means for U.S. courts to avoid application of Achmea to these enforcement cases.

In light of the inability of successful claimants in the intra-EU cases to enforce their awards in EU member states, and the importance of the U.S. as an enforcement jurisdiction, a U.S. court finding that Achmea precludes enforcement of an intra-EU treaty award would be a very significant, perhaps even mortal, blow to the continued viability of such arbitrations.  Further, any decision by a U.S. court to allow a state to avoid its treaty obligations by post-hoc decree (in these cases, by a supranational court) could potentially affect the legitimacy and finality of all arbitration awards and call into question decades of U.S. enforcement jurisprudence.

Conclusion

The Miculas’ success does not necessarily portend success for other investors seeking to enforce intra-EU investment treaty awards in U.S. courts.  It remains very much an open question whether U.S. courts will apply the CJEU decision in Achmea to intra-EU investment treaty claims challenging state conduct that occurred while the state was a member of the EU, and decline to enforce arbitral awards resulting from such claims.

 

[1] Micula v Romania, Case No. 17-cv-02332 (D.D.C. Sept. 11, 2019) [hereinafter “Micula Opinion”].

[2] Case C-284-16, Slovak Republic v. Achmea BV, 2018 E.C.R. 158.

[3] Micula Opinion, at 4.

[4] Id.

[5] See generally Ioan Micula, et al. v. Romania, ICSID Case No. ARB/05/20, Award, Dec. 11, 2013.

[6] See, e.g., Communication from the Commission to the European Parliament and the Council, Protection of intra-EU investments, July 19, 2018, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM%3A2018%3A547%3AFIN.

[7] Commission Decision 2015/1470, ¶¶ 3, 142, 153, 2015 O.J. (L 232) 43 (EC).

[8] Achmea, ¶ 60.

[9] Cases T-624/15, T-694/15, and T-704/15, European Food SA,, et al. v. European Commission, ECLI:EU:T:2019:423.

[10] Micula Opinion, at 31 (the Court agreed to convert the Award to U.S. Dollars; the amount of damages enforced by the Court reflects the initial Award with interest of 3-month ROBOR plus 5% compounded quarterly as granted in the Award and calculated by Petitioners for the Court).

[11] The Micula enforcement proceedings were originally filed in 2014 in the D.C. District and a companion case was filed in the Southern District of New York in 2015 seeking ex parte confirmation of the award.  See Lawrence W. Newman and David Zaslowsky, A BIT of Confusion in Enforcing Investment Treaty Awards, July 23, 2015, N.Y. Law Journal, https://www.law.com/newyorklawjournal/almID/1202732820556 (discussion of two district court decisions); Micula Opinion, at 7-9 (discussing previous efforts to enforce award).

[12] Micula Opinion, at 19.

[13] Id., at 14.

[14] Id., at 22.

[15] Id., at 16-17.

[16] Id., at 19.

[17] Id., at 19-20.

[18] Id., at 21-22.

[19] Id., at 22-26.

[20] Id., at 23-24.

[21] Id., at 26, 19.

[22] Eiser Infrastructure Limited, et al. v. The Kingdom of Spain, Civ. No. 18-cv-01686 (Jul. 19, 2018); Novenergia II – Energy & Environment (SCA) v. The Kingdom of Spain, Civ. No. 18-cv-01148 (May 16, 2018); Infrastructure Services Luxembourg S.A.R.L. et al. v. Kingdom of Spain, Civ. No. 18-cv-01753 (Jul. 27, 2018); Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, Civ. No. 18-cv-02254 (Sept. 28, 2018); Nextera Energy Global Holdings B.V. et al v. Kingdom of Spain, 1:19-cv-01618 (June 3, 2019); 9REN Holdings S.A.R.L. v. Spain, 1:19-cv-01871 (June 25, 2019). One proceeding (Novenergia) is an UNCITRAL award and is being enforced pursuant to the New York Convention, and two (Infrastructure and Masdar) have been stayed pending ICSID annulment proceedings.  Memorandum Opinion and Order, Infrastructure Services Luxembourg S.A.R.L. et al. v. Kingdom of Spain, Civ. No. 18-cv-1753 (D.D.C. Aug. 28, 2019); Memorandum Opinion, Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, Civ. No. 18-cv-02254 (D.D.C. Sept. 18, 2019).

[23] Eiser Infrastructure Limited and Energia Solar Luxembourg S.A.R.L. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, May 4, 2017, ¶¶ 179-207; Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. The Kingdom of Spain, SCC Case No. 2015/063, Award, Feb. 15, 2018, ¶¶ 449-66; Antin Infrastructure Services Luxembourg S.à.r.l. and Antin Energia Termosolar B.V. v. Kingdom of Spain, ICSID Case No. ARB/13/31, Award, June 15, 2018, ¶¶ 204-30; Masdar Solar & Wind Cooperatief U.A. v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award, May 16, 2018, ¶¶ 306-24, 327-42.

[24] See, e.g, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529-30 (2019) (“When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. …Just as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitability question that the parties have delegated to an arbitrator.”); ICSID Convention, Art. 41(1) (“The Tribunal shall be the judge of its own competence.”).

[25] 28 U.S.C. § 1605(a)(6); see e.g., Petitioners’ Response to Motion to Dismiss, at 11-15, Infrastructure Services, Civ. No. 18-cv-01753 (Jan. 28, 2019); Petitioners’ Response to Motion to Dismiss, at 11-16, Eiser, Civ. No. 18-cv-01686 (Jan. 14, 2019).

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