Three Questions for the Ninth Circuit in Antrix

The Supreme Court’s recent decision in CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd. represents a minimalist response to a narrow question embedded in a procedural labyrinth. As Ingrid Brunk noted on TLB, the Court resolved no significant issue, but rather corrected an obvious mistake by the Ninth Circuit. However, the case bristles with potential. Depending on what happens next, it may cast a long shadow on the position of the United States in the international arbitration system.

Devas, a private Indian company, obtained an arbitral award against Antrix, a state-owned Indian company, which it sought to confirm in the United States. Once confirmed, an award ascends to the status of a domestic judicial judgment, with all the attendant benefits under the Full Faith and Credit Clause. As an “agency or instrumentality” of India, Antrix comes within the Foreign Sovereign Immunities Act (FSIA) and thus faces jurisdictional rules that do not apply to private foreign companies.

The Ninth Circuit had held that Section 1330(b) of the Foreign Sovereign Immunities Act (FSIA) incorporates sub rosa the minimum contacts rule that U.S. courts traditionally apply to assess their personal jurisdiction over a civil defendant. Because Antrix has had no such contacts with the

United States, the lower court rejected confirmation of Devas’s arbitral award. This holding ducked the constitutional question that Antrix had advanced, whether the Due Process Clause of the Fifth Amendment requires minimum contacts even if FSIA does not. In the Supreme Court, all the parties repudiated the Ninth Circuit’s statutory holding.  Justice Alito, writing for a unanimous Court, ruled that Section 1330(b) does not, on its own, impose a minimum contacts test. Without saying more, the Court sent the case back to the Ninth Circuit for consideration of all the other arguments.

The Ninth Circuit now has plenty to do. As far as it appears, Antrix has had no contacts with the United States and owns no property here. One of its debtors currently is subject to a U.S. bankruptcy proceeding, raising the possibility of a contract claim that Devas in turn might attach, but that is not a U.S. property right, even if it may be an “attachable asset.” Since the U.S. proceedings began, an Indian tribunal determined that arbitral award rested on fraud and ordered the dissolution of Devas. Devas shareholders then intervened in the U.S proceedings to seek enforcement of the arbitral award on their own behalf. Meanwhile, the Indian courts also ruled that the award was invalid as a matter of Indian law. In short, the U.S. case is a mess, and there seem to be multiple grounds for making it go away.

This post addresses three questions that the Ninth Circuit will face. First, does the FSIA’s arbitration exception apply? Second, even if its statutory argument is sound, did Antrix waive it by concentrating instead on its constitutional claim in the lower courts? Third, what should be done with that constitutional claim?

FSIA’s Arbitration Exception

FSIA excepts from state immunity a suit to confirm a foreign arbitral award that concerns “a subject matter capable of settlement by arbitration under the laws of the United States” and is governed by a U.S. treaty “calling for” recognition and enforcement. The relevant treaty  is the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards. Devas’s claim rests on a contract between two Indian companies made under Indian law. The contract was to be performed in a part of outer space allocated by treaty to Indian control. Does the Convention apply to an Indian transaction governed by an Indian contract, or does it require some nexus with international commerce, in particular the foreign commerce of the United States?

Antrix argued before the Supreme Court that only disputes concerning “commerce,” as defined by Section 1 of the Federal Arbitration Act, are “capable of settlement by arbitration under the laws of the United States.” The Act’s definition of commerce excludes matters unconnected to the domestic or foreign commerce of the United States. The various Devas petitioners and the Solicitor General, as amicus curiae, disagreed, arguing that U.S. law applied a different definition of commerce to cases tied to the New York Convention.

Antrix’s statutory argument presents interesting questions, including whether references to “commerce” and “commercial” found in Title II of the Arbitration Act, which implements the New York Convention, have a different meaning from the general definition enacted in Title I. It also raises the issue whether the New York Convention might apply on its own terms as a self-executing treaty and thus supply a broader definition of commerce as a matter of U.S. law. Dicta in Medellín v. Texas indicates a negative answer to the latter question, but many have pushed back against that indication.

My amicus brief for the Court, made at the invitation of counsel for Antrix, did not disagree with his approach, but pointed in another direction. Admittedly, the Court took no note of my argument, or any of the other fine amici contributions. Yet I won’t let Justice Alito’s parsimonious reasoning on the way to a narrow outcome discourage me here.

This is the gist of what I told the Court. FSIA’s arbitration exception applies only if the award is “governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards.” Does the New York Convention, a treaty that states the rules for confirming a foreign arbitral award, call for recognition and enforcement of an award that falls within one of the Convention’s express exclusions from confirmation? I think not. If so, a U.S. court has neither subject matter nor personal jurisdiction over the dispute.

Let me unpack the argument. Section V(2)(b) of the New York Convention provides that recognition of an arbitral award may be refused if its confirmation “would be contrary to the public policy” of the country concerned. Can a treaty that supports a refusal to confirm be said to call for recognition and enforcement? If not, a case that fits with the treaty’s public policy exclusion falls outside the FSIA exception.

There are at least two reasons why the Devas award comes within the Convention’s public policy exclusion. First, the principle limiting a court’s personal jurisdiction to cases where a defendant has minimum contacts with the forum is , even if the right is waivable. Most of the Supreme Court’s jurisprudence, going back to International Shoe Co. v. Washington, see the principle as protecting fundamental individual interests, in particular freedom from unreasonable molestation through litigation. That narrative is true but incomplete, and an even stronger case exists for limiting the power of courts, federal or state, to entertain lawsuits against absent defendants.

If no limits exist on where a plaintiff can bring a case against a defendant, then the plaintiff possesses an extraordinary power to harass its adversaries. I do not suggest that international law forbids such suits, As I have argued in company with Bill Dodge and Anthea Roberts (and as the Restatement (Fourth) of the Foreign Relations Law of the United States concludes), the willingness of the European Union to codify the practice of “extravagant jurisdiction” suffices to show that no rule of international customary law, much less treaty, stands in the way. Still, it is a bad idea. States have better things to do with their limited judicial resources than opening their courts to lawsuits not entailing their substantive law and seeking relief from people with whom they have no connection, either through activity or ownership of property. Such suits are pointless or worse, as they may give an unfair advantage to claimants. The United States should avoid the practice as wasteful as well as discriminatory.

Thus a ban on personal jurisdiction in the absence of consent or minimum contacts does represent an important policy of the United States. But there’s more. Another principle, the Charming Betsy doctrine propounded by the Supreme Court, mandates the avoidance, if possible, of interpretations of positive law that would bring the United States into breach of its international obligations. The New York Convention’s public policy exclusion clearly invites, rather than bars, a refusal to confirm judgments when doing so would violate a treaty. And many treaties do apply here.

By my count, at least twenty-five so-called Friendship, Commerce, and Navigation (FCN) treaties remain in force for the United States. Terms vary, but most if not all guarantee state-owned companies the same treatment in U.S. courts that private foreign companies receive. Asserting personal jurisdiction over state-owned companies only because of the nature of their ownership, in circumstance where a private company would not be subject to lawsuits, breaches that obligation.

One could argue that this protection from discrimination is specific to treaty partners, and the New York Convention’s public policy exclusion should not apply to states such as India that have not joined an FCN treaty with the United States. As a matter of statutory interpretation, however, a better approach would be to read FSIA’s arbitration exception as not applying to suits that fall into a category that might breach U.S. international obligations, even if the particular case would not entail a treaty violation.

Waiver

Accordingly, a reading of FSIA’s arbitration exception that excludes the Devas’s suit is sound, even compelling. At the Supreme Court, however, both the Devas petitioners and the Solicitor General seemed to contend that Antrix, by not clearly arguing for the inapplicability of FSIA’s arbitration exception in earlier proceedings, had waived any statutory argument it might have. The Devas opinion indicates that the Ninth Circuit may consider this contention on remand.

I still do not understand how the waiver argument works here and hope that the Ninth Circuit will reject it. In the lower courts, Antrix emphatically opposed the imposition of personal jurisdiction. It focused on constitutional arguments, making statutory ones unnecessary. What it did not do was surrender the position that no personal jurisdiction existed.

Under both constitutional law and FSIA, a person can waive objections to personal jurisdiction, either by word or deed. Indeed, waiver is the first of the FSIA exceptions to immunity. But if a person expressly opposes personal jurisdiction, as Antrix did throughout, I do not understand how a failure to make every argument against jurisdiction implies a waiver for purposes of FSIA or the Due Process Clause.

There is an old argument, going backing to the early days of FSIA, that entering into an arbitration agreement within the scope of the New York Convention counts as a constructive waiver of immunity from a confirmation suit. The lower courts, most notably the D.C. Circuit, rejected that position, as did the London High Court in its recent Devas decision (involving a claim against India, not Antrix). Congress adopted FSIA’s arbitration exception in response, treating consent to arbitration as distinct from an express waiver of immunity.

The problem there stems from the duel status of the FSIA exceptions as bases for both subject matter and personal jurisdiction. Personal jurisdiction aside, in the absence of one of the exceptions, a federal court lacks subject matter jurisdiction over a case. And because subject matter jurisdiction is a constitutional aspect of the power of a federal court, no person by its action or inaction can bestow on a federal court authority that the Constitution does not give it. As the Court has indicated on many occasions, federal court subject matter jurisdiction is unwaivable. Moreover, as the Court also has held, this doctrine applies specifically to FSIA’s exceptions to immunity.

Verlinden BV v. Central Bank of Nigeria, the Court’s first FSIA decision, makes clear that a federal court may entertain a contracts law claim brought by one alien against another only if FSIA applies, because only FSIA (or a comparable statute) provides the federal question without which the court cannot act. The issue is constitutional, not statutory. The system will not tolerate a party inventing a federal question when none exists because that would lead to an illegitimate exercise of the judicial power. Accordingly, to proceed with a case, a federal court must determine whether subject-matter jurisdiction exists, even if a party has neglected to advance in a timely fashion all the reasons for the lack of jurisdiction.

In fairness to the Devas plaintiffs and the Solicitor General, the nonapplication of FSIA’s arbitration exception became evident only late in the case. Antrix, represented by new counsel once the Court granted certiorari, raised the issue for the first time in its merits brief as respondent, after Devas as petitioner and the United States as amicus had already filed their merits briefs. That meant they had only short reply briefs and limited oral argument as means to advance the waiver claim, with insufficient time to fully develop their reasoning. Still, on remand the Ninth Circuit should be in the position to dispense with the waiver issue and to confront the statutory argument directly.

Constitutional Due Process

In a post here before oral argument, I defended avoidance of the constitutional issue. The Court agreed at least for now, recognizing that it may not be necessary to determine whether foreign states count as “persons” under the Due Process Clause of the Fifth Amendment to dispose of this case. Here I will briefly review the reasons why the Ninth Circuit would do well to stay away from the Due Process claim.

There are two fundamental reasons for avoiding the resolution of difficult constitutional questions, both familiar. First, constitutional decisions foreclose further legislative action. If the constitutional problem is not urgent, letting it percolate while the political branches wrestle with possible approaches seems wise. Second, constitutional reasoning is hard to cabin. Unless it deploys for-this-case-only arguments, a practice to be avoided for many reasons, any court runs the risk of saying more than it means and opening up new problems for the future to expose. Constitutional adjudication should be saved for worthy cases.

Almost all the actual litigation over the application of the Due Process Clause to foreign states has involved only the issue of personal jurisdiction. I agree with Ingrid Brunk that the jurisprudence of the lower courts has left us with an unwieldy mess. They have held that foreign states are not persons under the Fifth Amendment, foreign state-owned companies are, but a bespoke and incoherent veil-piercing doctrine may convert state-owned companies into states. However, reading FSIA’s arbitration exception as incorporating a minimum contacts test makes most of the constitutional mess involving states and state-owned companies go away.

Most, because the issue of the constitutionality of FSIA’s other innovative exception to immunity, that for material support of terrorism that harms U.S. persons, would remain. They all involve suits against states, not state-owned companies. Targeting U.S. persons for murder and mayhem entails radically different issues regarding minimum contacts, and particularly of “purposeful availment” of U.S. capacities. Those cases, it seems to me, can be resolved on their own terms, without grappling with the broader ramifications of extending or denying due process rights to foreign states. In Republic of Argentina v. Weltover, a commercial dispute, the Court found it unnecessary to decide the constitutional issue because of Argentina’s evident contacts with the United States. I hope that a future terrorism case might rest on the same ground.

In the fullness of time, different problems might surface. We might someday have to wrestle with the application of other parts of the Fifth Amendment, especially the Takings Clause, to foreign states. Until now, however, the political branches have avoided steps that would put those questions in play. Until they do, leaving open the status of foreign states seems preferable to a comprehensive conclusion.

Conclusion

Of course, the Ninth Circuit could do less. It might ratify the decisions of the Indian courts, the seat of the original arbitration, as conclusive and send the Devas claimants packing. Still, connecting FSIA’s arbitral exception to the New York Convention’s public policy rule would clarify the law and sweep away the current mess in the lower court’s jurisprudence. It would be a fitting and happy end to this steaming mess of a case.