In a divided opinion, the U.S. Court of Appeals for the D.C. Circuit reversed a district court ruling that dismissed a case against the Czech Republic on jurisdictional grounds. The Appeals Court revived the case, finding the conditions were satisfied for jurisdiction over a foreign arbitration award involving a sovereign: (1) there was a basis upon which the District Court could enforce the foreign arbitration award; and (2) the Czech Republic did not have sovereign immunity from the enforcement action.
The Court looked to the Foreign Sovereign Immunities Act ("FSIA"), which provides the "sole basis for obtaining jurisdiction over a foreign state" by the courts of the United States. The FSIA contains an arbitration exception to sovereign immunity. In order to fall within the exception, the Court must determine: (1) whether the parties had a defined legal relationship – whether contractual or not; and (2) whether the arbitration award "is or may be governed by a treaty or other international agreement in force for the United States." The Appeals Court answered both questions in the affirmative. First, the agreement between the parties, though relatively informal, was enough to establish a legal relationship: the petitioner provided training, technology and coordination required for modernizing the Czech Republic's plasma system, and the respondent, the Czech government, knew of and supported these efforts by providing necessary administrative permits.
Second, both the Czech Republic and the United States are signatories to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"), 28 U.S.C. § 1605(a)(6), which provides jurisdiction to the district courts of the United States. However, the United States has adopted the commercial restriction to the enforcement of foreign arbitral awards, requiring the dispute to be "commercial in nature". Looking to its treatment in the field of international arbitration, "commercial" was defined as a "matter of relationships, whether contractual or not, that arise out of or in connection with commerce." Here, the parties were engaged in providing healthcare technology and medical services which the Court determined "has an obvious connection to commerce" and thus was "commercial in nature." The fact the Czech Republic funded that technology "through a percentage of blood plasma collected rather than through an up-front payment does not change the commercial nature of the relationship, which turned in large part on the transmission of valuable commodities from one party to the other."
As both a legal basis existed for the District Court to enforce the arbitration award, and the Czech Republic did not have sovereign immunity pursuant to the New York Convention and the nature of the parties' agreement, the District Court's sua sponte dismissal of the matter for lack of jurisdiction was reversed.
Diag Human v. Czech Republic Ministry of Health, No. 14-7142 (D.C. Cir. May 31, 2016)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
