Case of the Day: Figueiredo Ferraz E Engenharia De Projecto Ltda. v. Republic of Peru
Posted on December 20, 2011
The case of the day is Figueiredo Ferraz E Engenharia De Projecto Ltda. v. Republic of Peru (2d Cir. 2011). Figueiredo, a Brazilian corporation, made a contract with the Programa Agua Para Todas, an instrumentality of the Peruvian government, to prepare engineering studies on water and sewage services. The contract contained an agreement to arbitrate disputes, and after a fee dispute arose, Figueiredo demanded arbitration. The arbitrator, sitting in Peru, awarded Figueiredo more than $21 million in damages, $5 million of which was principal and the remainder of which was accrued interest and cost of living adjustments. The Ministry of Housing, Construction, and Sanitation unsuccessfully sought to have the award nullified in the Court of Appeals in Lima. Figueiredo then moved for confirmation in New York. Peru is a party to both the New York Convention and the Panama Convention.
Peru opposed confirmation on a forum non conveniens theory (and on other theories, including a FSIA theory, which are not relevant to the case of the day). The district court denied Peru’s motion to dismiss. On appeal, a divided panel of the Second Circuit took the highly unusual step of reversing a district court’s denial of a motion to dismiss on forum non conveniens grounds, focusing mainly on a Peruvian law that forbade a government agency from devoting more than 3% of its budget per year towards paying judgments. Allowing Figueiredo to look to the Peruvian defendants’ US assets in an attempt to get paid more quickly than Peruvian law permitted would, of course, run afoul of the statute, and the panel focused much of its attention on the importance of the Peruvian alw. In the background of the case was the Second Circuit’s decision in Monegasque de Reassurances v. NAK Naftogaz, 311 F.3d 488 (2d Cir. 2002), which held that forum non conveniens was a permissible defense to a motion for confirmation of an award under the New York Convention.
In light of Monegasque, the decision is not surprising. There is a strong argument that forum non conveniens should never be a defense to a motion to confirm an arbitral award, because the prevailing party should be entitled to look to the losing party’s assets anywhere in the world, and application of forum non conveniens seems to frustrate that end. But in light of Monegasque, it would be too much to expect a Second Circuit panel to adopt such a categorical rule. However, as Judge Lynch’s dissent shows, there are particularly strong reasons to think that the panel got this case wrong even in light of Monegasque. First, the majority focused on the public interest factors, which are, of course, relevant to any forum non conveniens analysis. But the court held that Peru’s substantive law—the 3% statute—caused the public interest factors to weigh in favor of a Peruvian forum for confirmation. As Judge Lynch points out, it is a bit startling for the substantive law that would govern if the case were heard in Peru to count as part of the public interest factors that weigh in favor of a Peruvian forum. Judge Lynch points out that the Supreme Court rejected the favorability of the foreign substantive law as a factor in the analysis in Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981). Second, Monegasque affirmed a district court decision on forum non conveniens. This case reverses the district court. But even if the court’s basic approach is correct, I find it hard to see how the public interest factors could weigh so heavily in favor of Peru as to require a form non conveniens dismissal.
I agree with esteemed fellow blogger Marc J. Goldstein that Monegasque warrants en banc consideration.