In Personam Injunctions and Annulment of Arbitral Awards: Lessons from the First Department’s Citigroup v. Fiorilla Decision

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Pediment of the Appellate Division of the Supreme Court of New York, First Department, in Manhattan, NY, USA | Courtesy Beyond My Ken / Wikimedia Commons.

In Citigroup v. Fiorilla, 151 A.D.3d  665 ( (2017), the Supreme Court of New York, Appellate Division, First Department raised an important challenge to the global regime of enforcement upon which international arbitration depends. As the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), nears its 60th birthday, the State of New York—or at least the First Department—appears to be showing an uncharacteristically hostile attitude toward the considerations of comity that necessarily underlie that 157-member pact.

 

In a laconic decision delivered on June 29, 2017, Justices Sweeny, Renwick, Andrias, and Kahn unanimously affirmed Justice Ramos’ use of an in personam injunction to prohibit a litigant from seeking to enforce before a foreign court an arbitral award annulled at the seat of the arbitration. The decision from the First Department evinces little evidence of any judicial appreciation for the extent of violence done to the New York Convention or the disrespect done to a foreign judiciary.

 

Background

 

The case arose out of a Financial Industry Regulatory Authority (FINRA) arbitration between John Fiorilla, as claimant, and Citigroup, as respondent. Fiorilla sought to recover certain losses allegedly suffered in connection with the 2007-08 Great Recession as a result of Citigroup’s allegedly irresponsible investment strategy. Prior to the commencement of the arbitration, the parties settled for $800,000.

 

Fiorilla seems to have later had a change of heart, and when his counsel would not go along with his instructions to renege on the settlement agreement and attempt arbitration, he wrote to FINRA himself, claiming that the matter had not settled. The tribunal, without providing explanation and in spite of being advised by Citigroup that the matter had been settled, restored the case without briefing or argument on the issue, ultimately awarding Fiorilla $10,750,000, plus interest.

 

Citigroup petitioned to have the award annulled under the Federal Arbitration Act, 9 U.S.C. § 10 and the N.Y. Civil Practice Laws and Rules (CPLR) § 7511. Justice Ramos, correctly recognizing that a prior settlement divested the arbitral tribunal of authority to entertain the controversy, annulled the resulting award. The Appellate Division affirmed on the basis that the arbitrators manifestly disregarded the law.

 

Apparently undeterred, Fiorilla sought to have the award enforced in France instead, a country lacking any substantive connection to the dispute, but within which Citigroup holds significant assets. Upon an ex parte application by Fiorilla—though one in which the annulment was not brought to the attention of the French court—the award was recognized and execution was sought upon Citigroup’s French assets. 151 A.D. at 665.

 

Somewhat inexplicably, Fiorella then returned to New York County State Supreme Court in an attempt to have Justice Ramos set aside his prior judgment annulling the award. This time, Fiorella argued that the French award recognition was entitled to respect as a matter of comity. Citigroup opposed and cross-moved to enjoin Fiorilla from seeking to enforce award in France, and to release any Citigroup assets seized. Given these events, the Court’s mounting exasperation in dealing with the patent “bad faith” of Fiorilla is perhaps understandable, and Justice Ramos granted Citigroup’s cross-motion.

 

The Appellate Division affirmed, relying on New York’s case law concerning foreign anti-suit injunctions, and concluding that the injunction was not only necessary to protect the New York judgment on the merits but also appropriate given the mala fide conduct of the claimant.

 

The New York Convention and Anti-Suit Injunctions

 

Shockingly, the First Department did not even consider the potential applicability of the New York Convention to this dispute, nor did it consider the possibility that litigation in connection with the enforcement of an arbitral award might require a different doctrinal approach than other kinds of transnational litigation. Indeed, the First Department appeared to completely ignore the extensive jurisprudence, both in the United States and abroad, concerning the enforcement of awards annulled at the seat of arbitration.

 

The New York Convention Art. V(1)(e) quite clearly contemplates that awards annulled at the seat of arbitration “may” still be enforced elsewhere. By way of comparison, Art. II(3) dictates that a state “shall” refer parties to arbitration. Thus, in personam orders compelling arbitration are common, while in personam orders that forbid enforcement of an award are unheard of. Indeed, perhaps the most prominent recent example of such enforcement emanated from just a few dozen blocks south of the First Department. In Corporación Mexicana de Mantenimiento Integral v. Pemex-Exploración Y Producción, 832 F.3d 92 (2d Cir. 2016) (“Pemex”), the Second Circuit enforced an award annulled by a Mexican court where the annulment proceeded along facts so “extraordinary” that failure to enforce would be “repugnant to fundamental notions of what is decent and just” per United States public policy.

 

Whether the Pemex case presents a desirable or workable standard is beyond the scope of this commentary; it is mentioned merely to underscore the readily apparent dangers of allowing courts at the seat of an arbitration not merely to annul an award, but to compel, on pain of contempt, a result abroad which may be “repugnant to fundamental notions of what is decent and just” in those countries. Indeed, it is precisely the desire to avoid such conflict—and thus promote international comity—that partially motivates the New York Convention’s structure of mandatory enforcement and permissive non-enforcement.

 

Yet despite all of this, the First Department did not appear to consider the legal regime governing the enforcement of arbitral awards at all. If they had, perhaps it would have become clear that Citigroup has a clear path under the French legal system to challenge the enforcement of an award annulled at the seat of arbitration, and that the ex parte application, far from a sinister attempt on Fiorilla’s part, is in fact the routine means of enforcing foreign arbitral awards in France.

 

Certainly, at least, it must be conceded that there is no compelling reason to interfere so forcefully in the legal system of another nation before that nation’s legal system even has the opportunity to correct any errors it made or be appraised of the true facts. To do so without at least considering the New York Convention and jurisprudence surrounding it is more puzzling still.

 

Implications

 

The regime of enforcement that international arbitration enjoys helps to facilitate global commerce and is one of the great achievements of public international law. At a political moment of unusual hostility toward multilateralism, it is so much the more disheartening to see an opinion that fails to even consider one of the cornerstones of the international arbitration regime.

 

Certainly, Fiorilla can be justly criticized for failing to inform the French court that the award had been annulled at the seat of arbitration. But the remedy that the First Department has approved does undue violence both to the terms of the New York Convention and to a foreign legal system. The result is new and unwelcome uncertainty regarding the ability of arbitration to produce not merely final and binding judgments but also effective remedies.