Thoughts on Greg Shill’s Judgment Arbitrage

Paul Revere
Happy Patriot’s Day!
Greg Shill, now a visiting assistant professor of law at the University of Denver and formerly on the Chevron team at Gibson Dunn, has written a very interesting paper, Ending Judgment Arbitrage: Jurisdictional Competition and the Enforcement of Foreign Money Judgments in the United States, 54 Harv. J. Int’l L. 459 (2013). The paper has recently been covered on Opinio Juris and on Greg’s own blog, Just Shilling (catchy title!)

Greg’s insight is that the fifty states do not have a uniform law of recognition of foreign judgments, and that some states (e.g., the states that have adopted the UFCMJRA) allow judgment debtors additional grounds for opposing recognition. Because a judgment, once recognized in one state, can readily be enforced in every state, judgment creditors will have an incentive to seek recognition in the most liberal state. Greg proposes a federal statute under which a judgment of one US state recognizing a foreign judgment would be required to be enforced in a second US state only if the second state would have recognized the judgment had the judgment creditor sought recognition in the second state to begin with. This is meant as an alternative to a draft statute proposed by the ALI, which would provide a uniform rule for recognition. Greg prefers his approach to the ALI approach because the ALI approach would stifle healthy innovation in the states.

The article is very clear and provides a helpful way of conceptualizing the issues. But I think the proposal is not one we should adopt, for a few reasons.

First, it’s not clear that there really is a problem that needs solving. For one thing, as recent work by John F. Coyle shows, there just aren’t that many actions to enforce foreign money judgments. See John F. Coyle, Rethinking Judgments Reciprocity, 92 N.C. L. Rev. 1109, 1157 (2014). Coyle’s methodology is not perfect, but according to him, from 2008 to 2012, there were 99 such actions. If we are very crass and remove a few reputedly high-quality jurisdictions (England, Canada, Australia, Germany) we are left with 53 actions, or 10.6 actions per year on average from all other countries. The total dollar amount is less than a billion dollars ($954.2 million), and if we take out the four jurisdictions, only about $700 million, or less than $150 million per year on average. Greg can point to several anecdotes, including the Chevron case and the Dole v. Osorio case, 1 but it’s at least worth noting that the plaintiffs in the Chevron case never even sought recognition of the judgment in the US, 2 and in any case, anecdotes are just anecdotes. Are the downsides of Greg’s proposal, which I’ll get to, justified by the small numbers apparently at stake?

Second, I think it’s a big deal to suggest making a statutory exception to the Full Faith and Credit statute. Does Congress have the power to do what Greg suggests? Maybe—even probably—so. But I believe that FF&C is one of the structural cornerstones of our federalist legal system, right up there with Supreme Court review of state court judgments and the Commerce Clause. We tinker with these things at our peril, and I think we should only do so for weighty reasons, which seem lacking here given the scant evidence of a real problem needing a solution. We can look at the national importance of full faith and credit from another perspective: suppose that a major US corporation lost a case abroad and the judgment creditors then obtained recognition of the judgment in the most liberal US jurisdiction it could find. It strikes me as highly troublesome, and contrary to the policy of full faith and credit, for the US defendant, which I assume is not a deadbeat, to do anything other than pay the judgment without requiring the judgment creditor to chase it from state to state, or even to use the judicial machinery for collection of judgments in the state where he obtained the judgment. Does a major US corporation usually require the sheriff to show up at its offices with a writ of execution before it will pay a judgment? No, and for good reason. Sure, there could be deadbeat defendants out there, or foreign defendants without a sense of corporate citizenship who might try to lead the judgment creditor on a chase through the fifty states, but that has to be exceptionally rare, I think.

Third, suppose we think the difference in the law of recognition in the several states is a problem that needs a solution. The simple answer, one Greg acknowledges, is to federalize recognition law and thus to eliminate the differences between states and eliminate the opportunity for arbitrage. The alternative Greg proposes creates the possibility of multiple recognition actions throughout the United States. This increases the cost of collection and also raises the risk of a war of attrition that, as a general matter, it seems to me US corporate defendants are going to be better-equipped to fight than foreign judgment creditors, at least in tort cases, even given the existence of third-party litigation funding. Chevron is a good example. It seems that a credible claim of fraud will cause funding to dry up. Again, is it worth creating a war of attrition that may well tilt the scales towards judgment debtors, not just in terms of the merits but in terms of the resources to litigate, given the small or non-existent scale of the problem?

Fourth—and this is just editorial—Greg is particularly concerned about those states whose law does not include something like § 4(c)(7) of the UFCMJRA, which permits non-recognition if “the [foreign] judgment was rendered in circumstances that raise substantial doubt about the integrity of the rendering court with respect to the judgment.” 3 That is, he is concerned about states that allow challenges to the overall integrity of a foreign judiciary but not to the integrity of the court that rendered the judgment. I have argued before that in principle, case-specific exceptions to recognition are a bad idea, because assuming the foreign judiciary overall is adequate, we should trust its appellate and collateral review mechanisms to detect problems of integrity in the lower foreign courts. Assuming again that the foreign judiciary overall is adequate, its higher courts are much better placed than American courts to know whether any monkey-business has gone on in the lower courts. If there has been what we would consider monkey business but that is just business as usual in the foreign judiciary, well, that’s just another way of saying that the foreign judiciary overall is inadequate.

I congratulate Greg on his interesting paper, and I hope he won’t take my disagreement amiss!

Notes:

  1. The Dole case doesn’t come into Greg’s statistics because it was filed in 2007.
  2. That is, they never sought recognition for purposes of obtaining enforcement in the United States; I have noted before that by asserting the Ecuadoran judgment was res judicata, they were asking the US court to recognize it. But that’s not really relevant to this post.
  3. Incidentally, a very similar provision is in the ALI proposed statute, which suggests that Greg’s opposition to the ALI approach is not just cover for seeking a substantively more favorable law for one kind of party or another but is really about the “laboratory of democracy” issue he raises.

About Ted Folkman

Ted Folkman is a shareholder with Murphy & King, a Boston law firm, where he has a complex business litigation practice. He is the author of International Judicial Assistance (MCLE 2d ed. 2016), a nuts-and-bolts guide to international judicial assistance issues, and of the chapter on service of process in the ABA's forthcoming treatise on International Aspects of US Litigation, and he is the publisher of Letters Blogatory, the Web's first blog devoted to international judicial assistance, which the ABA recognized as one of the best 100 legal blogs in 2012, 2014, and 2015.

7 thoughts on “Thoughts on Greg Shill’s Judgment Arbitrage

  1. Thank you, Ted, for your very thoughtful and sharp comments on the article. A few thoughts, slightly out of order:

    1. Full faith and credit: The recognition of foreign-country judgments strikes me as a curious place to plant a flag for faith and credit principles. Presumably, states have much less interest in whether their recognition judgments are enforced in other states than the judgments they render on the merits. For example, say we have two judgments. One is rendered in Kazakhstan, under Kazakh law, and is recognized in New York (and thus is now a “New York judgment”). The second is rendered in New York, under New York law. Enforcement of both is sought in Ohio. From almost any standpoint, I think New York has a greater interest in the enforcement of the second judgment, and should tolerate a higher degree of scrutiny from Ohio on the first. (I discuss some of the constitutional issues at pp. 488-91 of the article.)

    2. Ted contends that my article’s proposal creates the possibility of multiple recognition lawsuits throughout the US. But under my proposed statute, defendants could move, as they can today, to stay or dismiss actions based on usual principles, including res judicata (if one court has already decided recognition). I am not saying my statute resolves this annoyance, but I don’t think it makes it worse.

    3. “System” of corrupt tribunals vs. a single corrupt tribunal: Ted notes that “if what we would consider monkey business . . . is just business as usual in the foreign judiciary, well, that’s just another way of saying that the foreign judiciary overall is inadequate.” This may be true as a matter of logic, but courts applying the 1962 Act (the UFMJRA) have emphasized the difference between the inadequacy of judicial *systems* and the inadequacy of *individual tribunals*, and have held that an inability to prove that a *system* is inadequate is fatal to the “inadequate tribunals” defense to recognition.

    For example, in Lloyds v. Ashenden, Posner emphasized that the word “system” in the 1962 Act defeated the defendants’ argument because any problems in the rendering tribunal did not necessarily demonstrate inadequacy of the “system” of which it was a part. (The system there was England’s, so of course attacking it wouldn’t have worked.)

    I don’t want to lean too heavily on this because a thoughtful court may well conclude, as Ted argues, that a seriously flawed tribunal that is not reversed by higher courts or collaterally does suggest a failure of a “system,” but US courts have shown some reluctance to reach this conclusion, because it means indicting an entire foreign judiciary.

    4. Finally, I think Ted draws some incomplete lessons from the Chevron/Ecuador case to argue that the problem the article identifies will occur too rarely to worry about. For example, he notes that the Ecuadorian plaintiffs “never even sought recognition of the judgment in the US.” This was no accident. Chevron has tons of assets in the US and the US has perhaps the most permissive regime in the world for enforcing foreign judgments. Speaking only for myself (my representation of Chevron ended over two years ago), the main reason the plaintiffs did not seek recognition in the US is because of the extensive investigation and litigation efforts that Chevron undertook (justifiably, in my view) in US courts to expose the corrupt Ecuadorian judgment. Those efforts led to findings of fraud by multiple federal courts and culminated in a 497-page civil RICO judgment in Chevron’s favor last month. The article is not about the Chevron case, but I think it’s a mistake to conclude that because Chevron’s efforts – which cost a fortune and took years – succeeded, future frauds will surely fail as well. Chevron was fortunate to uncover videotapes of the plaintiffs’ fraud, and had to spend a fortune to do so. Foreign judgments that are procured through questionable means remain a concern, and our system is still not well equipped to deal with them.

    That said, as Ted notes, my proposal is not a “call to arms” about litigation fraud. (I think that bell has been sounded.) Rather, its goal is to get states and the bar to think hard about the tradeoffs between permissive and restrictive recognition regimes, particularly given that plaintiffs can sometimes arbitrage their way around regimes they don’t like.

    Thanks again for the feedback!

    1. Thanks, Greg, for the thoughtful reply. This is not directly responsive to your points, but you might be interested in this paper I published last year, which suggests a non-intuitive answer to the question of how, from the point of view of comity, a US court should treat a foreign judgment relative to how it treats a sister-state judgment. You may not find it persuasive, and I’m not really sure that I find it persuasive. I haven’t worked out in my own mind yet whether the point I make there bears on our discussion, but it seems to me that it may. And that, by the way, is the beauty of blogging—I don’t need to have a fully fleshed-out thesis before responding to your comment!

      1. Thanks, Ted, for sharing—your paper is very interesting. If, as you suggest, some American courts afford greater deference to foreign judgments than sister-state judgments, then to that extent I think we can expect the trend (noted by Chris Whytock and others) of plaintiffs bringing transnational disputes in foreign forums to continue. However attractive the US is as a merits forum, it strikes me as much more attractive as a place to enforce.

        To plug my article once more, I think your view is also consistent with judgment arbitrage occurring with greater frequency, because (1) as you observe, recognition is a relatively low bar and (2) once recognized by an American court, a foreign judgment can be enforced in any other US jurisdiction quite easily.

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