Law code, gavel and books.

In Albaniabeg Ambient Sh.p.k. v. Enel S.p.A. and Enelpower S.p.A., No. 15 Civ. 3283 (S.D.N.Y. Mar. 11, 2016), the District Court for the Southern District of New York concluded that Section 203 of the FAA and the New York Convention do not provide subject matter jurisdiction over actions to enforce a foreign court’s judgment, even where a party contends that the foreign judgment is inconsistent with an earlier arbitral award or agreement to arbitrate.

In 1997, BEG S.p.A. (“BEG”), an Italian company, received a concession from the Republic of Albania to construct and operate a power plant in Kalivaç, Albania. Two years later, BEG entered into a cooperation agreement with Enel S.p.A. (“Enel”)—Italy’s largest power company—in order to determine the feasibility of the Kalivaç project. In 2000, BEG entered into an agreement with Enelpower S.p.A. (“Enelpower”)—a subsidiary of Enel—to extend the period of cooperation. The agreement with Enelpower contained an arbitration clause that required any disputes in connection with the agreement to be arbitrated under the Arbitration Rules of the National and International Arbitration Chamber of Rome, Italy.

Later in 2000, the parties terminated their relationship and BEG initiated arbitration proceedings against Enelpower in the Arbitration Chamber of Rome, asserting breach of contract. The arbitral tribunal issued an award holding that Enelpower had no liability for damages, which was subsequently upheld by Italian courts.

In 2004, Plaintiff Albaniabeg Ambient Sh.p.k. (“Albaniabeg”)—an Albanian subsidiary wholly owned by BEG—commenced an action against Enel and Enelpower (“Defendants”) in the Tirana district court in Albania, alleging tort and unfair competition claims in relation to the Kalivaç project. The Tirana district court found Defendants liable for damages; this decision was upheld by the Albanian courts.

In 2014, Albaniabeg commenced the present action against Defendants to enforce the judgment of the Tirana district court. Albaniabeg moved for summary judgment in lieu of complaint in New York state court relying on Article 53 of the New York Civil Practice Law and Rules (“CPLR”), providing for the enforcement of foreign country money judgments.

Defendants removed the action from state court to the federal district court in New York, relying on the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), as implemented by the Federal Arbitration Act (“FAA”) in 9 U.S.C. § 205. The latter provision provides for removal to a district court where the subject matter of an action pending in state court “relates to an arbitration agreement or award falling under the Convention.”

Defendants argued that the action to enforce the Tirana judgment related to the arbitration agreement contained in the 2000 agreement between BEG and Enelpower, because the Tirana judgment was obtained in violation of that arbitration agreement and conflicted with the arbitral award holding that Enelpower had no liability to BEG. In response, Albaniabeg moved to remand, arguing that the district court lacked subject matter jurisdiction.

First, the court rejected Defendants’ general assertion that section 205 of the FAA conferred subject matter jurisdiction on federal courts. Rather, section 203 of the FAA conferred subject matter jurisdiction, while section 205 of the FAA dealt with removal jurisdiction only. The court held that it must have both subject matter and removal jurisdiction to decide the action.

Second, the court held that section 203 of the FAA did not confer subject matter jurisdiction in this case. The court relied on the Second Circuit’s narrow interpretation of section 203, conferring subject matter jurisdiction only in “actions to compel, confirm, or vacate an arbitral award” and for “other measures in aid of an arbitration.” Here, however, Albaniabeg brought the action to enforce a judgment of the Tirana district court, and Defendants merely asserted the arbitration agreement as a defense. Thus, the court granted the motion to remand the action to state court, holding: “An action to enforce a foreign court’s judgment is not converted to ‘an action or proceeding under the Convention’ [as required by Section 203 of the FAA] merely because a defendant raises – as a defense in the enforcement action – a prior arbitration award or an agreement to arbitrate.”

Finally, the court denied Albaniabeg’s request for an award of attorneys’ fees and costs pursuant to 28 U.S.C. § 1447(c).  The court recognized that such an award would only be justified if Defendants had “lacked an objectively reasonable basis for seeking removal.” In the court’s view, removal in the present case under section 205 of the FAA was not objectively unreasonable, because it raised “difficult” and “barely discussed” questions.

 

A version of this post originally appeared in the May 2016 edition of Baker & McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.