Case of the Day: Sharp v. Hisense USA

The case of the day is Sharp Corp. v. Hisense USA Corp. (D.D.C. 2017). Sharp, a Japanese electronics company, entered into a trademark license agreement with Hisense, a Chinese manufacturer. The agreement had an agreement to arbitrate disputes in Singapore under the SIAC rules. Sharp terminated the agreement, arguing that Hisense had failed to perform. Hisense demanded arbitration, and it sought emergency relief. The tribunal entered an interim award enjoining Sharp from terminating the agreement and requiring it to continue to perform pending the outcome of the arbitration. The interim award also enjoined Sharp to:

refrain from, directly or indirectly through its affiliates, disparaging [Hisense] and/or disrupting its business, including by making public statements or press releases about this arbitration and/or the dispute between [Hisense] and [Sharp], or approaching [Hisense’s] business associates and/or other third parties (including, but not limited to, [Hisense’s] customers, suppliers, content and service providers, and/or regulatory authorities, except as required by law), in respect of any matters that are to be addressed in arbitration under the [License Agreement].

Yikes! Sharp brought an action in Washington, seeking a declaration that the interim award is unenforceable in the United States because it is contrary to public policy, namely the policies embodied in the Free Speech Clause of the First Amendment. Sharp also sought a preliminary injunction. Hisense moved to dismiss for want of subject-matter and personal jurisdiction and for failure to state a claim on which relief could be granted.

Hisense’s argument was that Sharp was trying to annul the interim award, and that only the Singapore courts had jurisdiction, under the New York Convention, to annul. But the court held that Sharp wasn’t trying to annul the award, but rather sought a declaration about the enforceability of the award. Because US courts would have jurisdiction in an action to enforce the interim award, they also have jurisdiction to hear a declaratory action relating to the enforceability of the award in the United States. This seems sound. A decision in favor of Sharp would not be the equivalent of an annulment, since the award would remain enforceable everyone outside the United States.

The court went on to find that it lacked personal jurisdiction. I’m not going to review that part of the decision in detail. But because the personal jurisdiction issue was close, the court went on to decide the merits. There is, of course, a public policy defense to enforcement of an award under Article V of the New York Convention, though it is rarely successful.

To the extent the public policy argument was that the award would violate the First Amendment, the court rejected the argument on the grounds that the First Amendment only regulates state action, and here there is no state action. An arbitral award, the court said, is private (at least this one is—maybe the considerations would be different if the award were in a treaty arbitration), and under ordinary principles, judicial enforcement of the award doesn’t conjure state action out of a private relationship.

Why, then, have US courts, even before enactment of the SPEECH Act, sometimes refused to enforce foreign defamation judgments that don’t meet First Amendment standards? The court noted that foreign judgments are enforced on the basis of comity rather than under a treaty, as are arbitral awards. (Is this really right? Aren’t foreign money judgments generally enforced under statutes like the UFCMJRA rather than simple comity?) The court also argued that enforcement of a foreign judgment might be more like state action than enforcement of a foreign arbitral award. I don’t really get this: the First Amendment applies only to the action of American state or federal government, not foreign governments. Of course, a foreign judgment may be coercive in a way a private arbitral award can never be, but I don’t see why that should matter if we’re talking about the details of the state action doctrine.

Finally, the court refused to consider whether the First Amendment suggests the existence of First-Amendmenty policies even if enforcement of the award would not technically violate the Amendment because of the state action doctrine. The court regarded this argument as a kind of end-run around the state action doctrine. Again, I don’t really understand this. Why should we think that public policy is limited by such a technical doctrine?

I’m not saying that the case necessarily should have come out the other way. I do think the court’s analysis is unduly crabbed and technical. The case has been appealed, so I guess we will say what the D.C. Circuit has to say about all this.

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