Case of the Day: Servaas, Inc. v. Republic of Iraq

The case of the day is Servaas, Inc. v. Republic of Iraq (S.D.N.Y. 2012). According to the underlying judgment of the Paris Commercial Court, Servaas had a contract with the Ministry of Industry of Iraq for supply of equipment and machinery for a copper scrap refinery plant in Anbar Province. The contract, which the parties made in 1989, had a total price of more than $40 million. In 1990, following Iraq’s invasion of Kuwait, the US government prohibited American citizens from performing any contracts relating to any industrial project in Kuwait. Servaas was therefore required to terminate the contract, even though it had already delivered all of the goods and carried out many of the services required under the contract. After termination, Servaas demanded payment for services rendered, and when Iraq failed to pay, it initiated an arbitration before the ICC, to which Iraq did not respond. The arbitral tribunal was not constituted, due to the failure of Iraq to nominate an arbitrator.

Servaas sued in the Commercial Court of Paris and served the writ of summons through diplomatic channels on the Iraqi embassy in Paris, which agreed to accept it. Iraq did not appear in the action. In 1991, the court awarded more than $14 million in damages.

In 2009, after some additional proceedings in France, Servaas sought recognition and enforcement of the judgment in New York. It sued both the Ministry of Industry and Iraq itself. Both defendants moved to dismiss. The court denied the motion, and on appeal, the Second Circuit affirmed.

Servaas then moved for summary judgment. The defendants did not really put up much of a fight as to the Ministry, nor could they. But as to Iraq itself, the defendants stressed that Iraq was not a party to the contract. But the court found that since, under New York law, the Ministry was Iraq’s alter ego, since New York law governed the question whether the judgment against the Ministry could be enforced in New York against Iraq, and since the French court had personal jurisdiction over Iraq as an alter ego of the Ministry, Servaas was entitled to summary judgment.

To me the most interesting part of the decision is not really prominent in the decision itself. The court applied New York law to the question whether the court in Paris had personal jurisdiction:

New York may, and appropriately should, recognize a foreign judgment predicated on any jurisdictional basis it recognizes in its internal law.

This is a possible view (and it apparently is the established law in New York), but it is also possible that a court should decide the question of personal jurisdiction under the foreign law, or that it should decide the question under both the foreign law and US law. Here is what the First Circuit had to say about the issue in Evans Cabinet Corp. v. Kitchen Int’l, Inc., 593 F.3d 135, 142 n.10 (1st Cir. 2010):

Some states have concluded that the relevant question is only whether personal jurisdiction would have been present had the rendering court applied the law of the enforcing state. See, e.g., Genujo Lok Beteiligungs GmbH v. Zorn, 943 A.2d 573, 580 (Me.2008) (looking only to whether the foreign jurisdiction could have established personal jurisdiction under Maine law); Sung Hwan Co. v. Rite Aid Corp., 7 N.Y.3d 78, 817 N.Y.S.2d 600, 850 N.E.2d 647, 650-51 (2006) (interpreting the term “personal jurisdiction” as used in an analogous New York statute to mean “whether exercise of jurisdiction by the foreign court comports with New York’s concept of personal jurisdiction” and omitting any analysis of foreign law).

Other state courts instead have concluded that the proper interpretation is to ascertain first whether the rendering court could exercise personal jurisdiction over the defendant under its own laws. They then look to whether the rendering court could have exercised personal jurisdiction under the law of the forum state. The purpose of this second step is to ensure that the rendering court not only possessed jurisdiction at the time of judgment but also that the rendering court’s procedures comported with United States due process standards. Under this approach, both of these requirements are necessary for a rendering court to have personal jurisdiction over the defendant within the meaning of the Recognition Act. See, e.g., Monks Own, Ltd. v. Monastery of Christ in the Desert, 142 N.M. 549, 168 P.3d 121, 124-27 (2007) (adopting the approach of first ascertaining whether personal jurisdiction was satisfied under the law of the rendering foreign jurisdiction and then determining whether the judgment debtor’s applicable contacts with the rendering jurisdiction satisfy the United States constitutional due process minimum); Vrozos v. Sarantopoulos, 195 Ill.App.3d 610, 142 Ill.Dec. 352, 552 N.E.2d 1093, 1099-1100 (1990) (reviewing a trial court decision concluding that a Canadian court had personal jurisdiction over the judgment debtor pursuant to United States principles of due process and remanding for consideration of whether the Canadian court also had personal jurisdiction pursuant to Canadian law of service of summons). Federal courts applying analogous state recognition acts also have adopted this approach. See K & R Robinson Enters. Ltd. v. Asian Exp. Material Supply Co., 178 F.R.D. 332, 339-42 (D.Mass.1998). See generally Royal Bank of Canada v. Trentham Corp., 491 F.Supp. 404, 408-10 (S.D.Tex.1980), vacated by, 665 F.2d 515 (5th Cir.1981). The American Law Institute adopts this approach in its model federal statute on the recognition of foreign money judgments. See American Law Institute, Recognition and Enforcement of Foreign Judgments: Analysis and Proposed Federal Statute § 3 & cmt. c (2006).

I don’t want to make too definitive a comment on the various approaches, but it seems to me likely that a court ought to take the foreign law into account so as to avoid due process concerns. Suppose that under French law Iraq could show that it was not the alter ego of the Ministry. Iraq might then be surprised—even unfairly surprised—to be haled into court in the United States on a judgment against the Ministry under French law.

One response to “Case of the Day: Servaas, Inc. v. Republic of Iraq”

  1. […] Taglioni in La SylphideThe Paris Commercial Court goes two for two with today’s case of the day, L’Institute National De L’Audiovisuel v. Kultur […]

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