District Court Rejects Achmea Objection in Micula Ruling, Leaving Its Viability in Question

The U.S. District Court recognized and enforced a $330 million plus arbitral award under an EU-bilateral investment treaty despite insistence by Romania and the European Commission that the award is incompatible with European Union law. Romania filed an appeal.

By: Ayana Lindsey, staff member

This post discusses the recent decision in Micula v. Government of Romania, Case No. 17-cv-02332 (Sept. 11, 2019). The District Court decision can be found here.

Romania has appealed a September 2019 ruling that enforced a $330 million plus arbitral award that the country has been ordered to pay to two Swedish investors, Ioan and Viorel Micula. The U.S. District Court for the District of Columbia unexpectedly recognized and enforced the award under an EU-bilateral investment treaty despite insistence by Romania and the European Commission (“EC”) that the award is incompatible with European Union (“EU”) law.

As part of a years-long effort to confirm the arbitration award entered in their favor by the International Centre for the Settlement of Investment Disputes (“ICSID”), the Micula brothers petitioned the District Court for the District of Columbia to confirm the award, which would make it an enforceable judgment in the United States. The dispute itself arose from the 1998 Emergency Government Ordinance No. 24/1998 (“EGO 24”), which incentivized the petitioners to build “an integrated foot platform designed to produce consumer products and beverages for the Romanian market.” In 2004, Romania announced that it would repeal EGO 24, as part of its process of becoming a member of the European Union (“EU”), on the advice of the EC, who suggested that the EGO 24 incentives likely constituted “state aid” that was prohibited by the EU. Since 2005, the Micula brothers have been attempting to recover the money they invested (plus interest) in reliance on EGO 24. This case’s long-winding history has sparked a debate both in Europe and the United States over intra-EU bilateral investment treaties, colored by the history of these treaties— many of which were signed in the 1990s before the EU’s eastward expansion. While the debate will continue, the Micula brothers’ story has come to an end, or at least a temporary pause, in Washington, D.C.

Romania advanced four arguments, hence the District Court decision had four key holdings. Romania argued that (1) the court lacked subject matter jurisdiction under the Foreign Sovereign Immunities Act (“FSIA”), (2) Romania has fully satisfied the award, (3) the act of state doctrine prohibits the award’s enforcement, and (4) the foreign sovereign compulsion doctrine also prohibits enforcement. The court first found that Romania had waived its sovereign immunity pursuant to the FSIA arbitral exception, providing the court with subject matter jurisdiction. Then, the court held that neither the act of state nor foreign sovereign compulsion doctrines precluded the court from confirming the arbitration award. Finally, the court confirmed the award, finding that confirmation of the award was appropriate despite Romania’s contention that it had satisfied the award through a series of tax set-offs and forced executions from its treasury account.

Of particular interest, however, is how the District Court determined that it had subject matter jurisdiction under the FSIA. Pursuant to the FSIA, “a foreign state is presumptively immune from the jurisdiction of the United States courts, unless a specified exception applies.” The Micula brothers relied upon the FSIA’s arbitral exception to establish subject matter jurisdiction. The exception itself reads:

A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case . . . in which the action is brought . . . to confirm an award made pursuant to such an agreement to arbitrate, if . . . the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.

The court explained that once a plaintiff establishes as a threshold matter that an exception applies, the burden of establishing its inapplicability shifts to the party claiming immunity. The court had no difficulty finding that, as a threshold matter, the arbitral exception applied in this case.

As such, Romania (and by extension, the EC) pointed to the 2018 CJEU decision in Slovak Republic v. Achmea. In that case, the Court found that a 1992 bilateral investment treaty’s arbitration provision was inconsistent with EU law because permitting arbitration outside of the EU system could prevent disputes “from being resolved in a manner that ensures the full effectiveness of EU law, even though they might concern the interpretation of application of that law.” The Micula decision marks the first time a United States court has addressed the EU’s stance on this issue.

The District Court, however, rejected Romania’s contention that the Achmea decision is relevant under these circumstances. The court reasoned that Romania had not shown that the concern that animated Achmea—”the unreviewability of an arbitral tribunal’s determination of EU law by an EU court.” The court announced this holding for three reasons: (1) the facts here are materially different, (2) the Final Decision, wherein the original award was granted, shows that the dispute before the ICSID arbitral tribunal did not relate to the application or interpretation of EU law, and (3) the General Court’s ruling overturning the state aid decision confirms that the ICSID tribunal did not tread upon substantive EU law. In sum, the District Court concluded that the General Court itself distinguished the present circumstances from those in Achmea, and accordingly Romania’s argument that its exception should be applied over the FSIA arbitral exception fails.

The Government of Romania filed its notice of appeal to the United States Court of Appeals for the District of Columbia. Although we have not yet seen briefs from either party, it is imaginable that Romania will be directly asking the Court of Appeals to review the District Court’s discussion and holding on the Achmea exception, as its viability has implications beyond the Micula brothers and will set a precedent for challenging the enforcement of arbitration awards in U.S. courts moving forward.

Ayana Lindsey is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. Ayana graduated from Spelman College in 2016 with a B.A. in History.