Immediate Appeals in Foreign Sovereign Litigation
August 24, 2022
Foreign governments have many advantages in litigation. Chief among them is sovereign immunity. Under the Foreign Sovereign Immunities Act, foreign states and their agencies and instrumentalities are immune from suit in United States courts unless the case falls within one of the statute’s specific exceptions to immunity. That substantive immunity also confers important procedural advantages. While parties ordinarily must wait until the end of a case to appeal an unfavorable ruling, a foreign sovereign generally may take an immediate appeal from a ruling denying immunity under the collateral order doctrine. That right to interlocutory review can have a major impact on how cases unfold, particularly in investor-state arbitration enforcement proceedings.
The Collateral Order Doctrine
As every civil procedure student learns, courts of appeals generally have jurisdiction to review only “final decisions” of district courts. 28 U.S.C. §1291. That rule reflects powerful efficiency considerations. If parties could appeal adverse rulings at any point throughout a case, appeals would proliferate, and disputes would take much longer to resolve.
There are several exceptions to the final judgment rule. Under Federal Rule of Civil Procedure 54(b), if an action involves multiple claims or parties and a decision finally resolves some claims but not others, the court may enter a final judgment with respect to those claims if it finds “no just reason for delay.” Under 28 U.S.C. §1292(b), a district court may certify a ruling for interlocutory appeal if it perceives a “substantial ground for difference of opinion” and an immediate appeal could “materially advance the ultimate termination of the litigation.”
Beyond those explicit provisions, there is a judge-made exception known as the “collateral order” doctrine. That doctrine permits immediate appeals from orders that satisfy three criteria: The order must be conclusive; it must resolve important questions separate from the merits; and it must be effectively unreviewable on appeal from a final judgment. The Supreme Court has held in multiple contexts that orders denying immunity from suit may qualify as collateral orders. Courts of appeals routinely apply those precedents to denials of foreign sovereign immunity. A later appeal, they reason, cannot adequately redress a denial of immunity, because the very purpose of the immunity is to spare the sovereign from the burdens and indignities of litigation.
Immediate appeals from sovereign immunity rulings have salutary effects when they permit the prompt correction of a district court’s erroneous denial of immunity. But that review can impede efficient dispute resolution when the immunity claim is unfounded. Interlocutory appeals impose substantial costs. They can also result in severe delays, particularly when the court stays proceedings on the merits pending the appeal.
Immediate appeals present special concerns in investor-state disputes. Investors often require a foreign government to agree by contract or treaty to arbitrate disputes as a condition of investing in a foreign country. Those arbitration agreements offer a neutral forum if the foreign government later expropriates the investment or engages in other unfair or discriminatory conduct. An investor who obtains an arbitral award against the foreign state can ask courts to recognize and enforce the award and then execute against the state’s assets.
Arbitral enforcement has its own framework of substantive and procedural rules. The United States is one of more than 150 countries that have ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention. That Convention requires states to recognize and enforce foreign arbitral awards subject only to narrow exceptions. Parties relying on the Convention to enforce awards in the United States can also invoke the favorable procedures of the Federal Arbitration Act. Under that statute, petitions to enforce awards “shall be made and heard in the manner provided by law for the making and hearing of motions.” 9 U.S.C. §6. In other words, rather than following the cumbersome course of civil litigation, the case follows a streamlined process: The claimant files a petition to enforce the award, the respondent files an opposition, the claimant replies, and the court then rules on the matter. Those expedited procedures recognize that the parties have already aired the dispute at length during the arbitration itself and should not have to litigate the dispute anew simply to obtain recognition and enforcement of the award.
Where an investor seeks to enforce an arbitral award against a foreign sovereign, those claimant-friendly arbitration procedures bump up against the respondent-friendly immunity rules. The D.C. Circuit confronted that tension in Process & Industrial Developments Ltd. v. Federal Republic of Nigeria (2020). In that case, an investor contracted with the Nigerian government to build and operate a natural gas facility. After a dispute arose, the investor invoked the contract’s arbitration clause and obtained an award from a London tribunal. The investor then filed a petition to recognize and enforce the award in the United States. The Nigerian government moved to dismiss the petition based on sovereign immunity. The investor responded that, under the Federal Arbitration Act, the court should require the government to present its immunity arguments together with any merits defenses in a single opposition. The district court agreed.
The D.C. Circuit reversed. In its view, the Foreign Sovereign Immunities Act entitled the Nigerian government to a threshold determination of immunity before a court forced it to litigate the merits. Although the Federal Arbitration Act requires that petitions to enforce awards be treated as motions, the court did not view that treatment as precluding the respondent from filing its own motion to dismiss the petition on grounds of immunity. The court of appeals remanded the case for the district court to address those threshold immunity issues.
Reconsidering Immediate Appeals in Investor-State Disputes
The D.C. Circuit’s decision to favor sovereign immunity over prompt arbitration enforcement has serious consequences for investor-state disputes. Even focusing solely on the impact on district court proceedings, the court’s decision invites delays. By allowing sovereign respondents to file motions to dismiss petitions on immunity grounds followed by separate oppositions on the merits, the ruling creates two briefing cycles for a process that ordinarily contemplates only one.
Those delays are then magnified many times over when combined with the collateral order doctrine. If a district court denies the sovereign’s motion to dismiss, the sovereign could immediately appeal that ruling. The sovereign could then urge the district court to postpone proceedings on the merits until the court of appeals rules — and if the district court refuses, seek a stay from the court of appeals. A full-blown appeal before the district court even addresses the merits imposes substantial expense. It also greatly protracts the proceedings, stretching out what might otherwise be a six-to-eighteen-month district court recognition proceeding into a multi-year affair.
The rationale for allowing immediate appeals of immunity rulings is much weaker in arbitration enforcement cases than in other civil litigation. Arbitration enforcement is a streamlined process that rarely involves prejudgment discovery, let alone a trial. The burdens of further litigation from which immunity is supposed to spare the sovereign are therefore limited. A sovereign taking an immediate appeal from an immunity ruling is often just making one set of legal arguments to a court to avoid the purported burdens of having to make another set of legal arguments to a court.
Those two sets of arguments, moreover, often overlap. When seeking to enforce an arbitral award against a foreign sovereign, investors typically rely on the exception to immunity for proceedings “to confirm an award made pursuant to . . . an agreement to arbitrate” where the agreement was “made by the foreign state” and the award “is or may be governed” by the New York Convention. 28 U.S.C. §1605(a)(6). Foreign states often dispute whether that exception applies on the ground that they never agreed to arbitrate. For example, they may argue that the government official who signed the agreement lacked authority to do so, or that the agreement was entered into with a separate entity and not the state itself. Those are the same sorts of arguments respondents often make on the merits: The New York Convention’s very first ground for refusing to recognize an arbitral award is that there was no valid arbitration agreement or that the respondent lacked capacity to enter into the agreement. New York Convention art. V(1)(a). Immunity appeals are thus often just a preview of the sovereign’s merits arguments for not enforcing the award.
For those reasons, a regime that routinely permits foreign sovereigns to respond to arbitral enforcement proceedings by immediately appealing adverse immunity rulings may not strike the optimal balance between efficient arbitral enforcement and legitimate sovereign interests. The benefits of immediate appeals are limited, while the costs to efficient arbitral enforcement are substantial. Rules that impede the prompt enforcement of investor-state arbitral awards diminish investor confidence in an effective enforcement regime and ultimately discourage investors from financing projects in developing countries.
In other contexts, Congress has expressly restricted interlocutory appeals in foreign sovereign litigation. In 1996, Congress created a new immunity exception for terrorism claims, and in 2008, Congress revised and expanded the exception. One of the changes it made was to abrogate the collateral order doctrine for those claims: “In an action brought under this section, appeals from orders not conclusively ending the litigation may only be taken pursuant to section 1292(b) of this title.” 28 U.S.C. §1605A(f). Under section 1292(b), the district court must find a “substantial ground for difference of opinion” that could “materially advance the ultimate termination of the litigation.” 28 U.S.C. §1292(b). Absent those findings, the sovereign must wait until the court enters judgment to appeal the immunity ruling. To be sure, terrorism claims are different from arbitration enforcement claims. But there are reasons to be cautious about proliferating appeals in both contexts.
Even absent congressional action, courts have leeway over the contours of the collateral order doctrine. In Mohawk Industries, Inc. v. Carpenter (2009), for example, the Supreme Court refused to permit collateral order appeals from rulings denying attorney-client privilege. The Court reasoned that the collateral order doctrine requires a value judgment about the interests that would be lost through rigorous application of the final judgment rule. Although the Court focused on the relevant category of claims as a whole rather than the facts of a particular case, one could argue that immunity appeals in arbitration enforcement disputes, as a class, are less compelling candidates for interlocutory review.
Forbidding appeals under the collateral order doctrine would not foreclose interlocutory review altogether. Under section 1292(b), a district court can authorize an immediate appeal if it finds a “substantial ground for difference of opinion” that could “materially advance the ultimate termination of the litigation.” 28 U.S.C. §1292(b). When a foreign sovereign raises a substantial immunity claim, the district court should not hesitate to exercise that authority. Notably, Congress left open section 1292(b) as an avenue for review even when it eliminated the collateral order doctrine for terrorism claims. Section 1292(b) makes the district court rather than the foreign sovereign the primary gatekeeper for an immediate appeal. That approach may well strike a better balance in investor-state arbitration enforcement cases too.