The First Department’s February 2018 decision in AlbaniaBEG Ambient SH.P.K v. Enel S.P.A., 160 A.D.3d 93 (1st Dept. 2018), surprised many practitioners experienced in the recognition and enforcement of foreign money judgments by concluding that a plaintiff judgment creditor must show that it has personal jurisdiction over the defendant or the defendant’s property in New York if the defendant raises substantive statutory defenses to recognition. L. Newman & D. Zaslowsky, “Did it Just Get Harder to Enforce a Foreign Judgment in New York?” N.Y.L.J. (March 21, 2018) (the “limitation the First Department put on Abu Dhabi will likely be a surprise to many who have focused on this area of law”). Just a few years earlier, after all, in its 2014 decision in Abu Dhabi Commercial Bank v. Saad Trading, 117 A.D.3d 609 (1st Dept. 2014), the First Department had stated that “the CPLR [does not] require the judgment debtor to maintain property in New York for New York to recognize a foreign money judgment.” And quoting the Fourth Department’s longstanding 2001 decision in Lenchyshyn v. Pelko Electric, 281 A.D.2d 42 (4th Dept. 2001) (“the judgment debtor need not be subject to personal jurisdiction in New York” in an Article 53 proceeding (id. at 43) and stated further that the proceeding could be maintained in the state “even if defendants do not presently have assets in New York” (id. at 50).), the First Department had reasoned:
“even if defendant, do[es] not presently have assets in New York, plaintiff, nevertheless should be granted recognition of the foreign country money judgment pursuant to CPLR article 53, and thereby should have the opportunity to pursue all such enforcement steps in future … .”
117 A.D.3d at 612.
Although not mentioned in the First Department’s AlbaniaBEG decision, the backstory of AlbaniaBEG’s, and its parent’s, relentless and protracted litigation against Enel involving proceedings in seven countries over a span of 18 years may provide an important context for understanding the First Department’s decision.
Under CPLR Article 53 a “foreign country judgment which is final, conclusive and enforceable where rendered” (CPLR §5302) is “enforceable [in New York] by an action on the judgment [or] a motion for summary judgment in lieu of complaint” (CPLR §5303), unless the defendant establishes that one of the mandatory or discretionary grounds for non-recognition under CPLR §5304 applies. Article 53 represents New York’s adoption of the Uniform Foreign-Country Money Judgments Recognition Act (R. Reilly, Siegel Commentaries§ C5301:1), which the New York Court of Appeals has explained was enacted to “promote the efficient enforcement of New York judgments abroad by assuring foreign jurisdictions that their judgments would receive streamlined enforcement here.” CIBC Mellon Trust Co. v. Mora Hotel, 100 N.Y.2d 215, 221 (2003).
AlbaniaBEG involved a dispute between AlbaniaBEG’s parent company, Becchetti Energy Group S.p.A., on the one hand, and Enel S.p.A and one of its Italian subsidiaries (collectively “Enel”), on the other. The companies had entered into an agreement to develop a hydroelectric power project in Albania. When Enel withdrew from the agreement, Becchetti brought an arbitration proceeding in Rome pursuant to the terms of the agreement alleging breach of contract and bad faith. After Becchetti lost the arbitration, it challenged the arbitral award in Italian courts—reaching the Italian Supreme Court—which ultimately upheld the award. Becchetti’s Albanian subsidiary, AlbaniaBEG, brought an action in Albanian courts against Enel alleging tort and unfair competition. Arguing that it was not foreclosed by the Rome arbitral award because it was not a party to the agreement between Becchetti and Enel and because it was not in existence at the time the Becchetti-Enel agreement was entered into, AlbaniaBEG prevailed in the Albanian courts resulting in it obtaining a multi-hundred million Euro judgment against Enel, the exact amount of which was to be determined by a factor based on energy prices. 160 A.D.3d at 96 n.2.
AlbaniaBEG commenced an action to recognize its Albanian judgment against Enel in New York County Supreme Court pursuant to CPLR Article 53 via a motion for summary judgment in lieu of complaint. It obtained from the court an ex parte temporary restraining order purporting to freeze nearly $600 million of Enel’s and its US subsidiaries’ assets, which AlbaniaBEG’s counsel served on 26 financial institutions. Enel successfully moved to have the court vacate the TRO. AlbaniaBEG v. Enel, NY Co. Index No. 152679/14, 1st Dept. Appeal No. 3306, Brief for Defendants-Appellants at 11 (Enel Br.).
Enel moved to dismiss the case for lack of personal jurisdiction. It noted that, although it had subsidiaries which operated in New York, it itself had no operations in New York and had no property in New York. Relying on Abu Dhabi, the New York County Supreme Court denied Enel’s motion to dismiss.
The First Department reversed the Supreme Court’s denial of Enel’s motion to dismiss. It declared that its decision in Abu Dhabi was not controlling. The First Department distinguished Abu Dhabi on the grounds that the defendant there had not raised any of the substantive grounds listed in CPLR Article 53 to deny the recognition of the plaintiff’s foreign judgment:
Abu Dhabi, by its own terms, is not controlling where—as is the case here—the foreign judgment’s entitlement to recognition under article 53 is placed in question. In that situation, there is something to defend, and the court’s function ceases to be merely ministerial. In such a case—and the matter before us is such a case—the court will be required to determine contested questions of fact, of law, or of both, and, if nonmandatory grounds for nonrecognition of a judgment are raised, to exercise judicial discretion … To require a defendant to litigate such substantive issues in a forum where it maintains no property, and where it has no contacts that would otherwise subject it to personal jurisdiction, would “offend [the] traditional notions of fair play and substantial justice” at the heart of the Due Process Clause.
160 A.D.3d at 108 (citations omitted). (The First Department in AlbaniaBEG similarly distinguished Lenchyshyn: “However, the Lenchyshyn decision expressly notes that the defendants therein had not raised any of the grounds for nonrecognition of a foreign country judgment provided in CPLR 5304 and that ‘plaintiffs sufficiently allege that defendants have assets in New York,’ including bank accounts in Buffalo.” 160 A.D.3d at 107 n.15 (internal citations omitted)).
In AlbaniaBEG, Enel had attacked the foreign judgment on substantive statutory grounds under CPLR Article 53. Among other things, Enel asserted that the Albanian judgment (1) conflicted with a previous court judgment (the Italian courts’ affirmance of the arbitral award) (CPLR §5404(b)(5)); (2) was contrary to the pre-dispute agreement between the parties to arbitrate disputes in Rome (CPLR §5404(b)(6)); and (3) was inconclusive due to Albanian courts’ questionable ability to offer impartial tribunals compatible with the principles of due process. CPLR §5404(a)(1). Accordingly, the First Department granted the defendant’s motion to dismiss and reversed the Supreme Court’s order denying the motion.
As several commentators have noted, however, the First Department’s AlbaniaBEG decision provides the lower courts little guidance on what standards they should use in assessing a defendant’s assertion of defenses under Article 53. See, e.g., L. Newman & D. Zaslowsky, supra. While commenting that “it would be inappropriate at this juncture to express a view as to whether any of these objections to recognition of the Albanian judgment are likely ultimately to prevail, it cannot be said, on this record, that all of them have been asserted frivolously.” 160 A.D.3d at 111.
The First Department noted that the State and Commerce Department reports of Albanian court corruption in the record substantiated, but did not establish, Enel’s defense that the Albanian courts are not impartial. It also observed that the Italian judgment upholding the arbitral award on its face appears to conflict with the Albanian judgment and that the Albanian judgment seems to conflict with the arbitration agreement, but again, stated that Enel did not establish either of those conclusions. Although the First Department recognized that the factual record was undeveloped and the plaintiff could potentially challenge these defenses with further factfinding, it found that Enel had provided enough support for its defenses to grant a motion to dismiss. Id. at 111 n.20. This leaves the lower courts with considerable lack of clarity regarding what proof supporting a defense a defendant must submit in support of its motion to dismiss an Article 53 recognition claim.
The backstory here, though, may provide greater perspective on the First Department’s willingness to grant Enel’s motion to dismiss and conclude that not all of Enel’s defenses were frivolous. As noted above, not mentioned in the First Department’s decision, but summarized in Enel’s appeal brief, is the fact that AlbaniaBEG was nothing short of a serial judgment enforcer. In addition to its action in New York, AlbaniaBEG had filed actions in France in 2012, and the Netherlands, Ireland and Luxembourg in 2014, to have its Albanian judgment recognized in those jurisdictions. Enel Br. at 10; see also AlbaniaBEG v. Enel, NY Co. Index No. 152679/14, Defendants-Appellants Pre-Argument Statement (NYSCEF Docket No. 132) at 3. Thus, Enel was forced to simultaneously defend actions in five foreign jurisdictions to oppose the recognition and enforcement of the questionable Albanian judgment, including having to litigate in New York to have a nearly $600 million asset freeze lifted. (Seemingly not brought to the First Department’s attention is the fact that Enel had had to ward off multi-million Euro asset freezes in both France and the Netherlands in addition to the New York asset freeze. Enel, S.p.A. 2014 Annual Report at 275; see also Enel S.p.A. 2015 Annual Report at 293-94.) Moreover, all of this is after Enel had successfully defended Becchetti’s claims in the Rome arbitration and fended off Becchetti’s court challenge to the arbitral award which went to the Italian Supreme Court.
Clearly, AlbaniaBEG’s action in New York in addition to the recognition actions in France, The Netherlands, Ireland and Luxembourg bring into sharper relief the notions of fair play and substantial justice at issue when Enel had so little connection to New York and no property in New York. More importantly, AlbaniaBEG’s shotgun litigation strategy may have formed the foundation for the First Department to conclude on a motion to dismiss that Enel had raised at least one, if not more, non-frivolous statutory defenses. Thus, the backstory could shed some light on how the lower courts should consider whether a defendant’s asserted statutory defenses are frivolous or not, when faced with that question in a similar procedural posture, on a motion to dismiss.