The Second Circuit recently reversed and remanded for further proceedings a S.D.N.Y decision dismissing claims asserted by POLSINELLI clients CBF Indústria de Gusa S/A, Da Terra Siderúrgica LTDA and several other Brazilian companies ("Plaintiffs") under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") and under theories of fraud and fraudulent conveyance. Plaintiffs are seeking to enforce a $48 million foreign arbitration award ("Award") by the International Chamber of Commerce in Paris ("ICC") against Defendants Hans Mende, Fritz Kundrun and companies they control, who Plaintiffs alleged were the alter-egos of the Swiss company, Steel Base Trade AG ("SBT"), against whom the Award was initially issued.
The District Court's decision to dismiss the New York Convention claims was based, in large part, on its assertion that the Second Circuit's 1963 decision of Orion Trading Co., Inc. v. E. States Petroleum Corp., 312 F.2d 299, 301 (2d Cir), cert. denied, 373 U.S. 949 (1963), required a party seeking to enforce a foreign arbitration in the United States to first confirm the award in one proceeding and then to seek to enforce the award in a subsequent proceeding. The District Court found that SBT had become a "nullity" under Swiss Law when it was de-listed from the Swiss Commercial Registry, rendering it immune from suit in the U.S. and making it impossible for Plaintiffs to avail themselves of a subsequent proceeding to seek to enforce the Award against SBT's alleged alter-egos.
In reversing the District Court, the Second Circuit ruled that the two-step process laid out in Orion, decided many years before the adoption of the New York Convention, did not apply to the enforcement of a foreign arbitral award under the New York Convention, and that a foreign award creditor need file only one action in a District Court to confirm and enforce the award against an award-debtor and its alter-egos.
The District Court also dismissed Plaintiffs' fraud and fraudulent transfer claims under the doctrine of issue preclusion because Plaintiffs allegedly had raised the issue of fraudulent transfer during the pendency of the arbitration and such claims had been dismissed by the ICC Paris. The Second Circuit reversed the District Court because Plaintiffs had adequately pled facts demonstrating that Defendants had perpetrated a fraud during the arbitration by actively misleading the ICC Paris about their efforts to transfer assets from SBT during the arbitration's pendency.
The Second Circuit's ruling is significant because it alters and streamlines the jurisprudence around the enforcement of foreign arbitral awards in the United States by ruling that: (i) Orion does not apply to the enforcement of foreign awards under the New York Convention, and (ii) award-creditors seeking to confirm and enforce arbitral awards against award-debtors and their alleged alter-egos can do so in one proceeding rather than in seriatim proceedings.
POLSINELLI represented Plaintiffs in the District Court and before the Second Circuit. The U.S. State Department filed amicus briefs with the Second Circuit siding with Plaintiffs' positions.
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