Executive summary
We have previously discussed whether a successful party in an arbitration that may have been seated outside of the United States should consider enforcing that award against the award debtor or even a thirdparty who did not participate in the arbitration in US courts. A key consideration is whether the targets have assets in the United States that may be used to satisfy the unpaid arbitral award.
Confirming a foreign arbitral award as a judgment in US federal courts gives award creditors access to the powers in the Federal Rules of Civil Procedure to execute the judgment. In particular, a confirmed award gives creditors access to two powerful enforcement tools: writs of execution and discovery.
- A writ of execution is an order from the court that enforces the judgment and allows law enforcement to begin transferring the owed funds, assets, or collateral property.
- Discovery is a litigation tool whereby the award debtor or a third party may need to disclose information about assets that could be used to satisfy the confirmed award. Even if the unpaid arbitral award may not be satisfied fully using assets located in the US, the award creditor may use discovery tools to obtain information about the award debtor's assets located globally. Such discovery could be a roadmap to enforcing the arbitral award against the award in those jurisdictions where assets are located.
Execution of awards
Federal Rule of Civil Procedure 69 (Rule 69) provides the tools for creditors to execute confirmed awards1:
Rule 69(a)(1): Writs of Execution
Under rule 69(a)(1), award creditors can execute monetary judgments against award debtors via a writ of execution. The procedure behind this execution must comport with applicable state law procedure.2 The state law applied is the state law where the court enforcing the judgment sits.3
The main judgment collection remedies in New York are:
- Restraining Notice – this freezes the award debtor's
assets irrespective of possession and prohibits alienation of any
property in which they have interest.4
- A New York electrical supply corporation successfully used a restraining notice to prevent an award debtor power company from transferring funds to a company it claimed was a "distinct entity."5
- Execution – state law enforcement, such as a
sheriff's office, can seize property a debtor has an interest
in and sell it to satisfy a judgment.6
- An institutional bank was able to enforce a writ of execution against a Mexican citizen in a breach of contract case when it established that a New York LLC was his alter ego, allowing the court to issue a writ of execution against the LLC's Manhattan apartment building as a part of satisfaction for the judgment owed.7
- Turnover – the award debtor must surrender its property
directly to the judgment creditor or to the sheriff when that
property is located in New York.8 New York state courts
employ a twostep analysis to determine if property in possession of
a third party should be turned over to an award creditor: (1)
whether the judgment debtor has an interest in the property the
creditor seeks to access and (2) whether the judgment debtor is
entitled to possess such property, or whether the creditor's
rights are superior to those of the party claiming possession of
the property.9
- The institutional bank referenced in Section 2.a enforced a turnover against its award debtor and its alter-ego's bank accounts because all parties had an interest in the collateralized property and had control over it.10
- Garnishment – an award creditor can intercept payments of
the judgment debtor's income or property that can be assigned
or transferred.11
- A New York LLC was able to force the award debtor to turn over its membership interest in a Delaware LLC under New York law because the sitting federal court was located in the Southern District of New York.12
- A Bolivian company was able to force a group of Mexican award debtors to turn over certain assets in Mexico to satisfy an arbitration award under Colorado rules of civil procedure using Rule 69(a).13
To view the full article click here
Footnotes
1. FED. R. CIV. P 69. 2 State law procedure
2. State law procedure governs unless it is federally "preempted," meaning that federal law controls in those specified situations. The situations where preemption triggers, however, are few and limited to judgments against figures like revenue officers or which involve the execution of sales formalities. 245 Park Member LLC v. HNA Grp. (Int'l) Co. Ltd., No. 23-842-cv, 2024 WL 1506798, at *2 (2d Cir. Apr. 8, 2024).
3. Id. at *2.
4. N.Y. C.P.L.R. 5222 (MCKINNEY 2024).
5. Best Energy Power 2015, LLC v. Fed. Deposit Ins. Corp., 198 N.Y.S.3d 179, 180 (2d Dep't 2023).
6. N.Y. C.P.L.R. 5230 (MCKINNEY 2024).
7. Citibank, N.A. v. Aralpa Holdings Ltd. P'ship, No. 1:22-CV-08842 (JLR), 2024 WL 398094 at *2, *6, *19 (S.D.N.Y. Feb. 2, 2024).
8. N.Y. C.P.L.R. 5225, 5227 (MCKINNEY 2024).
9. Id. at *20.
10. Id.
11. N.Y. C.P.L.R. 5201 (MCKINNEY 2024).
12. Id. at *1–2.
13. Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua S.A.B. de C.V., 58 F.4th 429, 444, 469 (10th Cir. 2023).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.