In a highly anticipated ruling published last month, the U.S. Court of Appeals for the D.C. Circuit ruled in NextEra Energy v. Spain1 that U.S. district courts have jurisdiction to enforce arbitral awards issued in intra-EU disputes under the Energy Charter Treaty (ECT). On its face, this ruling would appear to be a major victory for holders of intra-EU awards and pave the way for the enforcement of those awards in U.S. courts. However, as discussed below, the D.C. Circuit’s ruling also severely limits the ability of U.S. district courts to issue anti-anti-suit injunctions to protect their own jurisdiction and, in doing so, may have actually created a significant barrier for EU investors.
The D.C. Circuit decision resolved appeals from three cases – NextEra,2 9REN Holding v. Spain,3 and Blasket Renewable Investments v. Spain.4 The investors (or, in Blasket, the investor’s successor-in-interest) held ECT awards against Spain and petitioned the U.S. District Court for the District of Columbia to confirm their awards – with mixed results.
In NextEra and Blasket,5 Spain moved to dismiss the petitions for lack of jurisdiction, arguing that it possessed sovereign immunity under the Foreign Sovereign Immunities Act (FSIA). One exception to foreign states’ FSIA immunity, however – the “arbitration” exception – applies where a case is brought “either to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration all or any differences which have arisen … or to confirm an award made pursuant to such an agreement.”6
Spain argued that this exception did not apply because there was no valid “agreement to arbitrate” with EU investors in the ECT, as such agreements are contrary to EU law. According to Spain, it was therefore entitled to sovereign immunity under the FSIA, and U.S. courts do not have jurisdiction to enforce the awards at issue.
As an additional defensive measure, Spain also filed its own lawsuits in the courts of the Netherlands and Luxembourg seeking to enjoin the investors from proceeding with their petitions in the United States (an anti-suit injunction). The petitioners in each case subsequently sought anti-anti-suit injunctions from the D.C. District Court to stop Spain from seeking its anti-suit injunctions.
On 15 February 2023, the D.C. District Court in NextEra and 9REN held that it had jurisdiction under the FSIA’s arbitration exception. The court held that Spain’s arguments as to the validity of its agreement to arbitrate with EU investors went to the scope of the agreement, not the agreement’s existence, and were therefore not jurisdictional but, rather, a question for the merits. The court thus denied Spain’s motion to dismiss in NextEra and granted the NextEra and 9REN petitioners their anti-anti-suit injunctions.
However, just six weeks later, on 29 March 2023, the D.C. District Court in Blasket reached a different result. Contrary to the NextEra and 9REN court, the Blasket court held that the question of whether the parties were capable of entering into an agreement to arbitrate was not one of scope but, rather, went to whether there existed a valid agreement to arbitrate. The court further determined that it must decide this question, as it could not rely on the decision of an arbitral tribunal formed under the potentially invalid agreement. The court concluded that “[b]ecause the agreement to arbitrate between Spain and the Companies was invalid under EU law, there was no valid agreement to arbitrate.”7 The court therefore granted Spain’s motion and dismissed the case.
Spain (in NextEra and 9REN) and Blasket appealed these decisions to the D.C. Circuit, which heard the appeals for the three cases together. In its 16 August 2024 decision, the D.C. Circuit held that the district courts had jurisdiction to confirm the intra-EU arbitral awards under the FSIA’s arbitration exception – but also held that the district court abused its discretion in issuing the anti-anti-suit injunctions in NextEra and 9REN.
With respect to the jurisdictional question, the D.C. Circuit largely followed the reasoning laid out by the district court in NextEra and 9REN. The D.C. Circuit explained that the question is whether such an agreement exists, not whether the dispute at issue actually falls within the scope of such an agreement (which instead goes to the enforceability of the award on the merits). Here, the appellate court determined that the ECT was unquestionably an agreement signed by Spain for the benefit of private parties and that Spain’s argument that the ECT was not for the benefit of EU investors goes to the scope, not the existence, of the arbitration provision. Thus, “[w]hether the ECT applies to [a] dispute” is not “a jurisdictional question under the FSIA.”8
Notably, while the D.C. Circuit stated that there are “powerful reasons to conclude that the standing offer to arbitrate contained in the ECT’s arbitration provision extends to EU nationals,” the court’s decision did not go that far.9 The D.C. Circuit cautioned that its holding is only that the district courts have jurisdiction to enforce (or to decline to enforce on the merits) intra-EU arbitral awards. The D.C. Circuit was clear that it was taking no position on the ultimate enforceability of the awards and therefore left open the merits question of whether the ECT’s arbitration provision extends to EU nationals.
In addition, despite finding that the district courts had jurisdiction under the FSIA’s arbitration exception, the D.C. Circuit (by majority) determined that the district court in NextEra and 9REN abused its discretion in issuing the anti-anti-suit injunctions. According to the appellate court, the district court did not properly consider (1) the fact that the injunctions were directed to a foreign sovereign (as opposed to a private entity) and (2) whether any domestic interests were strong enough to warrant the injunctions. The D.C. Circuit explained that the injunctions would impinge on the sovereignty of both the Spanish government to litigate and the Dutch and Luxembourgish courts to decide important questions of EU law and that anti-anti-suit injunctions against foreign sovereigns are nearly unprecedented. Moreover, given that the underlying disputes did not involve any U.S. parties or interests, the only domestic interest at issue was the public interest in encouraging arbitration, which the D.C. Circuit found insufficient to justify the injunctions.
For holders of intra-EU awards contemplating enforcement in the United States, the takeaways from the D.C. Circuit’s decision are mixed.
On the one hand, the D.C. Circuit’s holding that district courts have jurisdiction under the FSIA’s arbitration exception removes one hurdle from the enforcement process. Further, while the D.C. Circuit did not decide the merits of Spain’s intra-EU arguments, in practice, with jurisdiction established, EU State-respondents may now not have the opportunity to raise such merits arguments at all in cases involving ICSID awards (such as NextEra and 9REN). In such cases, the district court’s role in confirming the award is “exceptionally limited,” constrained to ensuring that it has subject matter and personal jurisdiction, that the award is authentic, and that its enforcement order tracks the award.10 An EU State-respondent could therefore have little opportunity to assert its intra-EU arguments to avoid enforcement in those ICSID cases. (We note that in cases involving awards issued by tribunals under other rules and seated outside of the United States, such as Blasket, the district court’s review is coextensive with the New York Convention and therefore provides EU States more room to challenge the validity of the underlying arbitration agreement as a basis for the court to refuse to confirm the award.11)
On the other hand, the D.C. Circuit’s decision would seem to severely limit district courts’ ability to protect their own jurisdiction with anti-anti-suit injunctions. The heart of the appellate court’s reasoning – that anti-anti-suit injunctions enjoining foreign sovereigns raise serious comity concerns – arguably applies in every case. While the D.C. Circuit stated that it was not categorically foreclosing anti-anti-suit injunctions against foreign sovereigns, there may be few, if any, fact patterns that would persuade the court that such an injunction is justified under the court’s guidance. As a result, while EU investors may, in theory, be able to enforce their intra-EU awards in the United States, such investors could be left largely defenseless (in the U.S. proceedings) to the EU State-respondents’ anti-suit injunctions brought in EU courts.
Footnotes
