Second Circuit Rules ExxonMobil Subsidiary Must Comply With FSIA in Order to Enforce $188 Million ICSID Arbitration Award in U.S.

The United States Court of Appeals for the Second Circuit has ruled that an ExxonMobil Oil Corporation subsidiary may not enforce a $188 million International Center for Settlement of Investment Disputes (“ICSID”) arbitral award against the Venezuelan government in the United States without first complying with the notice requirements provided for in the Foreign Sovereign Immunities Act (“FSIA”).  In Mobil Cerro Negro, Ltd., et al. v. Bolivarian Republic of Venezuela, No. 15-707 (2d Cir., July 11, 2017), the ICSID ordered Venezuela to pay the oil subsidiary, Mobil Cerro Negro, $188 million in connection with the government’s 2007 takeover of the oil industry.  After the award was issued, Mobil Cerro Negro filed an ex parte petition to collect the funds in the Southern District of New York.  The federal court granted the company’s petition and entered judgment in favor of Mobil Cerro Negro.

In response, Venezuela sought to vacate the judgment by arguing the federal court lacked subject matter jurisdiction over the case.  According to Venezuela, the FSIA supersedes the statute that created the ICSID.  The New York federal court rejected the country’s motion after determining it had jurisdiction in the case based on 22 U.S.C. § 1650a.  Venezuela then filed an appeal with the nation’s Second Circuit Court of Appeals.

In a 61-page opinion, the appellate court ultimately concluded:

Section 1650a of Title 22 requires federal courts to enforce ICSID awards as if they were final judgments of state courts—that is, pursuant to civil actions brought under the Federal Rules of Civil Procedure on such awards. The FSIA provides the sole basis for United States courts’ subject matter jurisdiction over foreign sovereigns, and Section 1650a embodies no exception to that rule. As a result, when the ICSID award-debtor is a foreign sovereign, the FSIA’s procedural mandates control, including the requirements that process be served to obtain personal jurisdiction under 28 U.S.C. § 1330(b), and venue be proper under 28 U.S.C. § 1391(f).

In light of our conclusion that the District Court did not have subject matter jurisdiction under Section 1650a and that the FSIA governs all aspects of this action, it follows further that the District Court’s judgment was void: Mobil did not serve Venezuela in accordance with the FSIA, 28 U.S.C. § 1608, and the District Court therefore did not have personal jurisdiction over Venezuela, 28 U.S.C. § 1330(b). Furthermore, Mobil’s ex parte petition is devoid of any assertion that venue in the Southern District of New York is appropriate under the FSIA, nor is the propriety of that venue apparent from the face of the petition. We therefore reverse the District Court’s order denying Venezuela’s Rule 60(b) motion to vacate, and we vacate the judgment against Venezuela without prejudice to Mobil’s filing an action to enforce the ICSID award in a court in which venue is permitted under the FSIA. Because we vacate the judgment, we need not consider whether the District Court properly refused to adjust the interest rate imposed by the ICSID tribunal on the Award.

Since the lower court lacked subject matter jurisdiction in the case, The Second Circuit Court of Appeals reversed the Southern District of New York’s order denying Venezuela’s motion to vacate, vacated the federal court’s judgment, and remanded the case “with instructions to dismiss the petition without prejudice to renewal in an action commenced in compliance with the Foreign Sovereign Immunities Act.”

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