Arbitration. Enforcement of Award. Foreign Sovereign Immunities Act. Personal Jurisdiction. District court refuses to enforce $20 million award…

Posted: March 31, 2021 at 4:28 am

UAB Skyroad Leasing v. OJSC Tajik Air, No. 20-cv-00763 (D.D.C. Jan. 26, 2021) [click for opinion]

Petitioner UAB Skyroad Leasing ("Skyroad") brought an arbitration against Respondent OJSC Tajik Air ("Tajik Air"), before the Vilnius Court of Commercial Arbitration in Vilnius, Lithuania, for violating an agreement to lease two Boeing aircraft. In 2018, a $20 million award was issued in favor of Skyroad. It brought this action to enforce the award.

Tajik Air argued that the petition should be dismissed because the court lacked personal jurisdiction over it. Specifically, Tajik Air argued that it did not have sufficient minimum contacts with the United States for the court to exercise personal jurisdiction consistent with the Due Process Clause of the Fifth Amendment. Skyroad argued in response that a minimum contacts analysis was not required because Tajik Air qualified as a foreign state under the Foreign Sovereign Immunities Act (the "FSIA"); therefore, Tajik Air had no Fifth Amendment due process rights. Skyroad's argument was based on the fact that Tajik Air was incorporated under the laws of Tajikistan and fully owned by the state.

Because Skyroad conceded that Tajik Air lacked sufficient minimum contacts with the United States to satisfy the Due Process Clause, the court only addressed whether Tajik Air qualified as a foreign state. The court noted that, underSection 1330(b)of the FSIA, personal jurisdiction over a foreign state exists as to every claim for relief over which the district court has subject matter jurisdiction. However, the court explained that this only applies to "an actual foreign government."

When a case involves an "agency or instrumentality" of a foreign sovereign, the court affords the instrumentality a "presumption of separateness" from the foreign sovereign. For purposes of personal jurisdiction, that presumption means that, unless rebutted, the instrumentality is entitled to due process protection under the Fifth Amendment. And such protection means that, unless the instrumentality has sufficient minimum contacts with the United States, the court lacks personal jurisdiction over it.

Skyroad's case thus rested on rebutting this presumption of separateness. Skyroad asserted that Tajikistan maintained such extensive control over Tajik Air that the company lacked a distinct identity. Skyroad argued that this lack of a distinct identity was clearly shown through (i) Tajikistan's owning 100% of Tajik Air's voting shares, (ii) the government's making decisions on disbursements and appointment of the company's Director General, the Supervisory Board including senior government officials, and (iii) the government's funding Tajik Air, and the reducing of Tajik Air's debts through tax offsets.

The court rejected most of these arguments, stating that the facts presented "are relevant but as a matter of law do not by themselves establish the required control" and "such government action to prop up a wholly owned instrumentality's financial position is not at all unusual, however, and does not constitute excessive control by the state."Further, the court identified features of Tajik Air that "are the hallmark of separateness from a sovereign". First, Tajik Air was restructured from a state enterprise to an open joint stock company by government resolution in 2009. Second, Tajik Air is "authorized to open bank accounts, operate on an independent balance sheet, and may acquire and exercise its proprietary rights and personal non-property rights, incur obligations and litigate."

Under these circumstances, the court ruled that Skyroad did not sufficiently rebut the presumption of separateness; therefore, the court deemed Tajik Air a "person" for Fifth Amendment due process purposes. Because Skyroad conceded that Tajik Air lacked sufficient minimum contacts with the United States, the court concluded that it lacked personal jurisdiction over Tajik Air and could not enforce the $20 million award against the company.

Will Shields of the Washington, DC office contributed to this summary.

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Arbitration. Enforcement of Award. Foreign Sovereign Immunities Act. Personal Jurisdiction. District court refuses to enforce $20 million award...

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