No less an authoritative source than New York's highest court has said “New York has traditionally been a generous forum in which to enforce judgments for money damages rendered by foreign courts.” CIBC Mellon Trust Co. v Mora Hotel, 100 N.Y.2d 215, 221 (2003). Consistent therewith, in July 2011, we wrote a column titled “I Love New York for Seizing Assets.” Part of our article talked about how New York state courts were a friendly forum for enforcing foreign judgments because of a decision that held there is no need to establish personal jurisdiction or quasi in rem jurisdiction in order to enforce a foreign country money judgment. A recent First Department decision may have cast doubt on the continued viability of that concept.

The 'Lenchyshyn' Decision

Lenchyshyn v. Pelko Electric, 723 N.Y.S.2d 285 (4th Dept. 2001), was an action brought under New York's version of the Uniform Foreign Country Money Judgments Recognition Act, codified in New York as CPLR Article 53. All of the parties were Canadian and the plaintiffs sought to enforce their multimillion dollar Canadian money judgment in New York. Defendants sought dismissal on the ground that they were not subject to the personal jurisdiction of the New York courts.

The court rejected defendants' argument, explaining that the U.S. Constitution does not require that there be present traditional minimum contacts supporting original personal jurisdiction for a New York court to assert jurisdiction over a defendant for purposes of enforcing a foreign judgment against it. The court specifically held that a foreign judgment could be enforced even if the defendant had neither minimum contacts with, nor assets in, New York. In this manner, the court adopted an approach different from the traditional quasi in rem enforcement jurisdiction, under which a prerequisite to the enforcement of a judgment is a showing by the plaintiff that assets of the judgment debtor have been attached or could be levied on in execution of the judgment. See, e.g., Shaffer v. Heitner, 433 U.S. 186, 210 n.36 (1977).

The First Department faced the same issue in 2014. In Abu Dhabi Commercial Bank PJSC v. Saad Trading, Contracting and Financial Services Co., 986 N.Y.S.2d 454 (1st Dept. 2014), it followed Lenchyshyn and, in a case involving the enforcement of an English judgment, held that there was no need to establish a basis for the exercise of personal jurisdiction over the judgment debtor by the New York courts.

The First Department Pivots

In its most recent consideration, in a February 2018 decision, AlbaniaBEG Ambient [“ABA”] Sh.p.k. v. Enel S.p.A., 2018 NY Slip Op 00928 (1st Dept. Feb. 8, 2018), the First Department looked at the issue quite differently. The case arose out of an agreement for the possible construction of a hydroelectric power plant in Albania. When a dispute arose, an arbitration resulted in an award against ABA's parent company. ABA nevertheless brought a lawsuit in Albania concerning the same contract, which resulted in a judgment in ABA's favor.

When ABA sought to enforce that foreign judgment in New York, Enel moved to dismiss for lack of personal jurisdiction. ABA had conceded that both defendants were “foreign corporations with no known presence in the state of New York.” Defendants further noted that ABA had neither “identif[ied] any property of defendants within the jurisdiction” nor “allege[d] any contacts between the defendants and New York that bear the slightest relation to the dispute” underlying the Albanian judgment. On this basis, defendants argued that dismissal was required by the U.S. Supreme Court's decision in Daimler AG v. Bauman, 134 S.Ct. 746 (2014), which had been issued three months earlier.

The lower court denied the motion to dismiss. Relying on Abu Dhabi, the court held that ABA could maintain the proceeding for recognition and enforcement of the Albanian judgment even if defendants were not subject to personal jurisdiction in New York and had no property in New York. Defendants appealed and the appellate court reversed.

With respect to Daimler, the Supreme Court's sea-changing 2014 decision that significantly narrowed the personal jurisdiction reach over foreign defendants, the First Department held that its requirement that the foreign entity be “at home” in the state did not apply to proceedings to recognize or enforce foreign judgments. The court referred to the oft-quoted footnote 36 in Shaffer, which talked about the presence of assets being sufficient for jurisdiction over a party that has been adjudicated a debtor. Because, the court explained, Daimler cited Shaffer four times with approval, and Daimler addressed the constitutional requirements for personal jurisdiction to adjudicate a claim on its merits in the first instance, the court did not read Daimler's contraction of general jurisdiction to entertain plenary actions as applying to proceedings to recognize and enforce previously rendered foreign judgments.

The conclusion that Daimler was not controlling still left open the question of whether the case could be maintained under the jurisdictional principles governing CPLR Article 53 proceedings for enforcing foreign country money judgments. On that issue, the First Department held that the lower court was wrong to rely on Abu Dhabi. Rather, the court explained, Abu Dhabi must be limited to the circumstances in which the defendant does not contend that substantive grounds exist to deny recognition to the foreign judgment under Article 53. If, however, a defendant offers a substantive defense to enforcement—as was the case in ABA—then it is also necessary to establish a basis for personal jurisdiction.

The limitation the First Department put on Abu Dhabi will likely be a surprise to many who have focused on this area of law. For example, Profs. Linda Silberman and Aaron Simowitz of N.Y.U. Law School wrote in a recent article that “two lower court New York state decisions have dispensed with any jurisdictional requirement for an action to enforce a foreign judgment.” Linda J. Silberman and Aaron D. Simowitz, “Recognition and Enforcement of Foreign Judgments and Awards: What Hath Daimler Wrought?,” 91 NYU L. Rev. 344, 353 (2016). The two decisions they referred to were Lenchyshyn and Abu Dhabi, and the authors did not refer to any limitations on the holdings of either of those decisions.

Indeed, Abu Dhabi was based on Lenchyshyn and there was nothing in the latter decision that said that it was limited to cases in which there was no substantive challenges to the underlying judgment. Moreover, in Abu Dhabi, the First Department relied on two other cases besides Lenchyshyn to support its holding—Haaksman v. Diamond Offshore (Bermuda), Ltd., 260 S.W.3d 476, 480 (Tex. App. 2008) and Pure Fishing v. Silver Star Co., 202 F. Supp. 2d 905 (N.D. Iowa 2002). In both of those cases, there were substantive challenges to the enforcement of the underlying award, yet the courts still held that personal jurisdiction was not necessary.

Where Does 'Abu Dhabi' Stand Now?

The AlbaniaBEG Ambient court offered the following reasoning for its decision. The underlying premise of Abu Dhabi, it said, was that the enforcing court had been merely “performing [a] ministerial function” (id. at 613) in according recognition to a foreign judgment of unquestioned finality. In Abu Dhabi, entertaining the recognition and enforcement proceeding in New York imposed “no hardship” on the defendant, since “there [was] nothing to defend” (id.), given that the defendant was not raising any substantive defenses to the recognition of the foreign judgment. In contrast, when a substantive defense is raised under Article 53, there is something to defend, and the court's function ceases to be merely ministerial. In such a case, the judgment debtor should be accorded additional due process protection in the form of a requirement of minimum contacts with the enforcing jurisdiction. To require a defendant to litigate such substantive defenses in a forum where it maintains no property, and where it has no contacts that would otherwise subject it to personal jurisdiction, the ABA court said, would “offend [the] traditional notions of fair play and substantial justice” at the heart of the Due Process Clause.

Nonetheless, judgment debtors may now take comfort from the ABA decision and in how it has attempted to distinguish and limit Abu Dhabi. A judgment debtor that wants to frustrate recognition and enforcement of a judgment may now raise defenses to enforcement under CPLR Article 53 and claim its entitlement to Due Process protection.

The First Department seemed to be aware that it could be seen to have opened the door too widely to resistant debtors who might assert spurious defenses in order to obtain additional Due Process protection. The court said, “while it would be inappropriate at this juncture to express a view as to whether any of these objections to recognition of the Albanian judgment are likely ultimately to prevail, it cannot be said, on this record, that all of them have been asserted frivolously.” An inference that may reasonably be drawn from this comment is that frivolous defenses will not trigger the requirement for personal jurisdiction. But it is difficult to see how that standard can work in practice because the very act of making a determination of frivolity would require the court to decide contested questions, which the First Department explained is the trigger for the requirement for personal jurisdiction. Although a rule that encourages frivolous or futile defenses against the recognition of foreign judgments was probably not the intention of the court, it could very well be a result.

The net effect of the AlbaniaBEG Ambient decision will likely be to limit the future impact of Abu Dhabi. In doing so, it brings the First Department in line with the law in the Second Circuit (Frontera Resources Azerbaijan v. State Oil Company of Azerbaijan, 582 F.3d 393 (2d Cir. 2009)) and most of the rest of the country. Less clear is the status of Lenchyshyn. It is a Fourth Department case and it will be interesting to see what that court does if AlbaniaBEG Ambient decision is cited as precedent before it.

Lawrence W. Newman is of counsel and David Zaslowsky is the Chairman of the Litigation Department in the New York office of Baker McKenzie. They can be reached at [email protected] and david.zaslowsky@­bakermckenzie.com, respectively.