| March 1997 |
Enforcement of Foreign Country Judgments in Arizonaby James O. EhingerImagine that you have just been contacted by the local representative of a foreign corporation that purchased a container of widgets from an Arizona manufacturer two years ago. The widgets were defective, and, since the buyer was sophisticated enough to know that such transactions are generally considered to be governed by the law of the country in which delivery occurred, it sued in its own nation’s courts; made direct, personal service on the Arizona defendant; and recovered a substantial judgment for breach of contract, as well as prevailing on some uniquely local tort and statutory claims. However, since all of the seller’s assets are located in Arizona, the buyer’s victory will be hollow unless that judgment will be recognized and enforced by Arizona’s courts. The company has sought your advice as to whether, and how, enforcement may be obtained. Such scenarios were once a rarity in Arizona. However, the past few years have witnessed a dramatic growth in Arizona’s status as an international marketplace, both in terms of our state’s outbound international trade as well as inbound foreign investment. This increasingly cosmopolitan environment has made disputes between Arizona citizens and foreign nationals more frequent, and it is no longer uncommon for an Arizona practitioner to be called upon to handle a matter that presents some multinational component. Contrary to popular belief, and contrary to the situation with regard to enforcement of foreign arbitration awards, there is no federal legislation nor any treaties governing the recognition and enforcement of foreign judgments in the United States. Although the U.S. Constitution’s grant to Congress of the power to regulate foreign commerce theoretically encompasses the authority to enact legislation regulating the enforcement of other countries’ court awards, Congress has, thus far, declined to exercise that authority. Moreover, mutual suspicion of one another’s court systems has prevented the United States from entering into treaties with other countries for mutual recognition of judgments. Thus, the enforcement of foreign judgments in the United States is governed almost entirely by state law.1 Because of the lack of federal legislation in this area, in 1962 the National Conference of Commissioners on Uniform State Laws promulgated the Uniform Foreign Money-Judgments Recognition Act (UFMJRA), which provides that, if the decision of the foreign tribunal was rendered in a manner compatible with American notions of due process, the judgment may be "domesticated" by use of the summary procedures of the "Sister States" Judgments Act.2 While the UFMJRA has been adopted by 25 states and the U.S. Virgin Islands, Arizona is not one of them. Moreover, beyond having held that the provisions of the "Sister States" Judgment Act cannot be used to enforce judgments rendered in a foreign country, Arizona’s appellate courts have provided little guidance regarding our state’s law on recognition of foreign decrees.3 Their pronouncements on this subject are limited to the general comment made in Feuchter v. Bazurto, 22 Ariz. App. 427, 528 P.2d 178 (1974), that Arizona will follow the "modern trend" to give conclusive effect to foreign country judgments, absent a showing of extrinsic fraud or some other basis to impeach the validity of the decree. 22 Ariz. App. at 429, 528 P.2d at 180. Unfortunately, Feuchter did not actually involve an action to enforce a foreign country judgment. Feuchter had been the unsuccessful defendant in a prior action brought by Bazurto in Mexico to collect three unpaid checks given by Feuchter for purchase of a business. When Feuchter filed a new lawsuit in Arizona seeking to rescind the contract, Bazurto moved for summary judgment on the ground that these issues had already been decided against Feuchter in the Mexican litigation, and that the Mexican judgment was res judicata. Feuchter contended that the Mexican judgment had been obtained by fraud and collusion, but failed to present any evidence to support those allegations. Thus, the Court of Appeals found it unnecessary to determine what grounds might justify refusing recognition of an alien judgment, since Feuchter had not provided controverting evidence to support any potential defense.4 Although the Feuchter court cited no direct authority for its comments regarding the recognition of foreign country judgments, its methodology — of presuming the Mexican judgment to be valid and binding absent some showing of a compelling reason to deny recognition — is consistent with the approach taken by the Restatement (Third) Foreign Relations Law. Given Arizona’s traditional adherence to the principles of the Restatements, our courts will undoubtedly follow the Restatement (Third) Foreign Relations Law in deciding these issues, and, in fact, this has been the practice in our trial courts. However, because Arizona has not adopted the summary procedures of the UFMJRA, enforcement must be sought in the form of a common-law action on the judgment, or as an action for debt. Such a suit must be filed within four years of the date the foreign country judgment was entered, even if the judgment would be valid and enforceable for a longer period of time in the issuing jurisdiction.5 The provisions of the Restatement (Third) Foreign Relations Law relating to foreign country judgments were promulgated in 1986 to provide criteria for the recognition and enforcement of money judgments, foreign divorce decrees, support awards, tax judgments and various other forms of foreign court decisions. As applied to money judgments, the Restatement is based upon, and is similar to, the UFMJRA, and it follows a three-step analysis for determining whether a foreign nation’s decree will be entitled to recognition. These consist of: (1) foundational requirements which must be met before the court will consider the question of enforcement; (2) mandatory grounds for non-recognition which, if found, require the court to refuse to grant recognition; and (3) permissive grounds for non-recognition which allow the court to decline to enforce the judgment if it feels that fundamental considerations of fairness, due process or public policy have been violated under the facts of the case. Foundational Requirements Before a court will consider the question of recognition, the proponent of the judgment must first demonstrate that the foreign country judgment is "final," and that the judgment is still valid and enforceable in the jurisdiction where issued.6 Finality for these purposes does not mean that the lawsuit has been fully resolved, or that no further review will occur. A foreign nation’s judgment will be considered final even if it may still be subject to appellate review, and even if an appeal is pending at the time enforcement is sought -- although the pendency of an appeal may be grounds for a stay of its enforcement. Rather, a foreign country judgment is deemed "final" if the dispute has been fully resolved at the trial court level, and no further trial proceedings are contemplated under the local practices of the issuing jurisdiction. Despite this requirement of finality, U.S. courts have occasionally granted recognition to a foreign court’s interim orders, where such orders would be separately enforceable under U.S. law. Thus, for example, U.S. courts have "domesticated" and enforced preliminary injunctions issued in other countries, even though such an order does not fully resolve the litigation out of which it arises. Mandatory Grounds for Non-Recognition Procedural Due Process: In order to be entitled to recognition in the United States, the judgment must have been rendered under a judicial system that provides for "impartial tribunals" that conduct themselves through "procedures compatible with due process of law."7 Thus, if the defendant was given proper notice of the proceedings and a fair opportunity to participate in them, and was allowed a legitimate opportunity to present his case by offering witnesses and evidence on his behalf before a tribunal that acted as an impartial referee, the requirements of procedural due process will be deemed satisfied, even if the procedures employed may have been radically different than those normally followed by U.S. courts. For example, judgments entered by courts in South America have been routinely upheld despite the fact that most of those countries’ civil procedures do not allow for pre-trial discovery, do not permit the parties to testify on their own behalf, and prohibit cross-examination of the witnesses. Similarly, the fact that the court operated under different rules of evidence, or applied evidentiary presumptions unknown in the United States, does not constitute a deprivation of procedural due process. If these restrictions are applied even-handedly to both parties, and the litigants are otherwise allowed to present evidence to support their claims, due process will be considered satisfied. However, where the court’s procedures are applied in a biased manner, or a party is deprived of the ability to present evidence, recognition can and will be denied. For example, judgments of the former East Germany were routinely denied recognition in the United States on the ground that its courts did not sit as impartial referees, but acted more like prosecutors to impose an ideological result upon the proceedings. Similarly, a judgment obtained by the government of Iran against the former Shah’s sister was recently denied recognition because that country’s climate of political repression had made it impossible for her to procure witnesses to testify on her behalf.8 However, such cases are the exception, and litigation undertaken in a foreign country pursuant to that nation’s regular and ordinary procedures will typically be held to satisfy the requirements of procedural due process. Personal Jurisdiction: Lack of personal jurisdiction is one of the more common grounds upon which U.S. courts have refused recognition of foreign country judgments. This question is resolved in accordance with U.S. law relating to long-arm jurisdiction, and the U.S. court will put itself in the place of the overseas tribunal to determine whether a U.S. court could have properly exercised jurisdiction over a foreign defendant under the same circumstances. If so, the foreign court will be held to have properly exercised jurisdiction over the U.S. defendant. Arizona considers its courts to have jurisdiction to the maximum extent permissible under the U.S. Constitution, and, therefore, this issue represents one of the few questions on which federal law is controlling, albeit indirectly. Federal law regarding general jurisdiction is relatively clear, and a foreign national who has a substantial and ongoing presence in the United States will be treated as a local resident for jurisdictional purposes. Thus, a U.S. defendant with an on-going presence in another country will clearly be subject to the jurisdiction of that nation’s courts. A more difficult question arises with regard to special jurisdiction, since the U.S. Supreme Court is split between plurality opinions, one of which would allow jurisdiction only when the foreign defendant has "purposely availed" itself of the forum state through its own direct actions, while the other would permit jurisdiction whenever there was a "reasonably foreseeable economic impact" in the forum state from the defendant’s activities.9 Both the Ninth Circuit and the Arizona Supreme Court have chosen to follow the "purposeful availment" test. However, Arizona takes a generalized approach, and has held that, if a foreign national purposely avails itself of doing business in any of the United States, Arizona may properly exercise jurisdiction if those activities cause an injury here, even if the alien defendant did not do business directly in Arizona.10 Thus, an Arizona company that does business overseas can expect to be subjected to the jurisdiction of its trading partners’ local courts if a dispute arises out of those activities, even if its foreign contacts consisted of nothing more than delivery of its product directly to a foreign buyer. Service of Process: As a general rule, U.S. courts will not require that service of process be made by any particular method, so long as the process employed as reasonably calculated to give the defendant notice of the proceedings, and allowed him a legitimate opportunity to prepare for and appear at the hearing. The fact that the summons was written entirely in a foreign language, or that the defendant did not realize that he was being served with process, are not legitimate objections.11 On the other hand, a summons that does not provide the defendant with the location of the court, or the date and time of the hearing, will not suffice. Permissive Grounds for Non-Recognition Subject Matter Jurisdiction: A court may decline to recognize a foreign judgment if it feels that the foreign tribunal did not properly have jurisdiction over the subject matter of the dispute.12 Again, however, this determination will be made on the basis of U.S. concepts of judicial authority. Thus, because U.S. trial courts are generally recognized as having a wide-ranging scope of jurisdiction, this issue rarely arises, and it is extremely rare for a foreign country judgment to be denied recognition on this basis. Precisely the opposite is true with enforcement of U.S. judgments overseas, however, and lack of subject matter jurisdiction is one of the more common grounds upon which U.S. judgments are denied enforcement in foreign countries. Lack of Timely Notice: Even if the deficiencies in the notice given of the overseas court proceeding do not amount to a denial of due process, a U.S. court may nonetheless exercise its discretion to refuse enforcement of the resulting decree if it feels the defendant did not receive sufficient notice to enable him to participate meaningfully in the proceedings. This rule is most often applied in cases where service of process was made by publication which, although technically constitutional, did not actually serve to apprise the defendant of the litigation pending against him. Similarly, if the summons omits critical information, such as the hearing date, a U.S. court may decline to enforce a judgment subsequently entered. Fraud: A court may decline to enforce a foreign country judgment that was procured by fraud. However, as in domestic cases, the type of fraud necessary to vitiate a judgment is extrinsic fraud; that is, a fraud which has prevented a party from having a full and fair opportunity to present his case.13 Intrinsic fraud, such as procuring a judgment through the use of perjured testimony or falsified evidence, is generally not sufficient to impeach a judgment, either foreign or domestic. Repugnancy: A court may also decline to enforce a foreign judgment if it was entered on a claim that is repugnant to some fundamental law or public policy of our state. A foreign national’s claim is not "repugnant" simply because the cause of action upon which judgment was rendered does not exist under U.S. law. For example, U.S. courts routinely enforce Canadian judgments based on claims for alienation of affection, breach of promise of marriage and criminal conversation, even though these causes of action have long ceased to exist in the United States. Similarly, U.S. courts will confirm and enforce judgments that contain awards of attorney’s fees, or other types of damages that would not have been available to a U.S. litigant suing upon the same cause of action in the United States. Rather, to be "repugnant," the foreign national’s claim must be contrary to some express public policy of the enforcing state, impinge upon public morals or violate the defendant’s constitutional rights. In fact, the most common category of cases in which recognition of foreign country judgments is denied on grounds of repugnancy are libel suits against U.S. publishers that would have been barred by the First Amendment if litigated in the United States.14 Otherwise, repugnancy will generally only be found where the foreign award contravenes some express judicially declared or statutory policy of the enforcing state. Conflicting Judgments: A court may decline to enforce a foreign country judgment if it conflicts with another final and conclusive judgment. Such a conflict may arise between two inconsistent foreign country judgments, or between a foreign nation’s judgment and an extant U.S. judgment.15 In the later situation, there is no general rule that entitles the Sister State Judgment to preference over the foreign country judgment. Rather, the more recent judgment will generally be given preference over an earlier judgment, but there are exceptions. Inconsistent Agreement: A court may also decline to recognize a foreign country judgment if it was entered in derogation of an agreement between the parties that their disputes would be resolved in some other manner, or in some other forum. Thus, when the litigation was undertaken in disregard of an arbitration agreement between the parties, or in violation of a forum-selection clause, the court may decline to recognize the validity of those proceedings.16 However, the U.S. defendant will be held to have waived this right by voluntarily participating in the foreign country’s proceedings without objection, or without attempting to transfer the matter to the agreed-upon forum. Currency Exchange Once you have surmounted all of the obstacles described above, and have convinced an Arizona court that your client’s international judgment is entitled to recognition and enforcement in this state, a difficult question may yet remain with regard to the amount of the judgment to be entered. The majority rule requires that a money judgment of an American court be entered only in U.S. dollars. Thus, before the new judgment can be issued, the amount of the foreign country judgment must be converted into U.S. dollars. Because currency exchange rates can fluctuate dramatically, the date on which the conversion is calculated may substantially affect the amount of the Arizona judgment. The National Conference has attempted to resolve this dilemma by, in 1989, promulgating the Uniform Foreign-Money Claims Act. The UFMCA abrogates the traditional rule, and allows a newly domesticated U.S. judgment to be entered in the same currency in which the foreign nation’s judgment was rendered. The debtor is then given his option to either pay the judgment in foreign currency, or to pay the equivalent amount in U.S. dollars at the official conversion rate in effect on the day payment is made.17 The UFMCA has been adopted in 19 states, but not in Arizona. Thus, your court will be required to apply one of two traditional doctrines: (1) the "judgment day rule," which requires that the conversion be made using the exchange rate in effect on the day the new, domesticated U.S. judgment is entered; or (2) the "breach day rule," which requires that the conversion be calculated as of the date the original, foreign country judgment was entered.18 While some states mandate the use of one of these rules in all cases, in general, the judgment day rule will be applied when the foreign country judgment was based on an obligation that arose under that nation’s laws, while the breach day rule will be applied when the underlying obligation arose out of U.S. law. In order to eliminate the unexpected windfalls and losses that can result from extreme fluctuations in currency exchange rates, the Restatement (Third) Foreign Relations Law has created what is known as the "Creditor’s Choice Rule." Under the Restatement formula, the court is to apply whatever exchange rate appears best calculated to "make the creditor whole and to avoid rewarding a debtor who has delayed in carrying out the obligation."19 While the Arizona courts have never spoken on the issue of currency exchange, they would, in all likelihood, apply the Restatement "Creditor’s Choice Rule." The Question of Reciprocity It is still an open question whether Arizona will require, as a condition to the enforcement of a foreign country judgment, that the proponent affirmatively demonstrate that the issuing jurisdiction would itself recognize and enforce judgments entered by U.S. courts. This requirement of "reciprocity" was first enunciated in the U.S. Supreme Court’s seminal opinion in Hilton v. Guyot, 159 U.S. 113, 16 S. Ct. 139, 140 L.Ed. 95 (1895), in which a French plaintiff was attempting to enforce a judgment obtained in France against two American citizens. The Supreme Court held that, as a general rule, "comity," which the Court defined as the due regard which one nation owes to the legislative, executive and judicial acts of another, would require a U.S. court to give recognition and effect to the judicial decrees of a foreign nation. Thus, the Court held that, where a U.S. citizen has been duly served or has voluntarily appeared in a foreign proceeding before a court of competent jurisdiction, and a judgment has been entered against him upon regular and impartial proceedings, such a judgment should be recognized and enforced by the courts of the United States. The Court went on to hold, however, that a country need not give such regard to the decisions of another unless that deference would be reciprocated. Since, at that time, foreign judgments were reviewable upon their merits under French law, the Court concluded that this lack of reciprocity precluded enforcement of the French judgment in the United States. Although Hilton has never been overruled on this issue, subsequent courts have often ignored the reciprocity requirement, and at least one Circuit has suggested that it is no longer good law.20 Similarly, the drafters of both the UFMJRA and the Restatement (Third) Foreign Relations Law intentionally omitted lack of reciprocity as a ground for non-recognition. Despite this trend, however, many states continue to require reciprocity as a condition to enforcement of a foreign country’s judgments. For example, even though reciprocity is not required under the model form of the UFMJRA, six of the states which have adopted the Act have also engrafted reciprocity requirements into their versions of the statute. Although New Hampshire has not adopted the UFMJRA, it has nonetheless enacted a statutory requirement of reciprocity for enforcement of foreign country judgments, and this doctrine continues to be judicially applied by the courts of many states. Because the Restatement does not require a showing of reciprocity as a condition to enforcement of a foreign nation’s judgments, it is arguable that this doctrine should not be applied in Arizona. However, Arizona has never had occasion to address this issue, since all our reported decisions involved judgments entered in Mexico, which technically grants reciprocal recognition to U.S. judgments.21 Because so many states have embraced the reciprocity doctrine as a matter of public policy, it should not be taken for granted that our courts would ignore this requirement if requested to enforce a judgment issued in a country that itself declines to honor U.S. judgments. Conclusion The enforcement of foreign judgments represents a legal "terra incognita" for most Arizona attorneys. However, as our state becomes more cosmopolitan, and our business environment more multinational, it is a territory with which we all need to become more familiar.
James O. Ehinger is of counsel with the law firm of Jennings, Strouss and Salmon, and he specializes in commercial litigation and international law. ENDNOTES: 1. There is a judicially-created federal common law of enforcement of foreign country judgments based upon the seminal decision in Hilton v. Guyot, 159 U.S. 113, 16 S. Ct. 139, 140 L. Ed. 95 (1895). However, because diversity actions for enforcement of foreign nations’ judgments are governed by state law, application of that federal doctrine is limited to cases arising under federal-question jurisdiction. |