Coming to America: How Cert Denial Opens the Doors to US Enforcement of Intra-EU Awards

KEY TAKEAWAYS:

• The U.S. Supreme Court's denial of certiorari in the NextEra v. Spain cases ends Spain's (and the European Union's) attempt to block enforcement of "intra-EU" arbitral awards based upon Achmea and Komstroy.
• European holders of arbitration awards against European Union nations can and should seek enforcement in the United States, with its broad discovery regime, to locate state assets capable of enforcement.

The U.S. Supreme Court's denial of certiorari in NextEra Energy Global Holdings B.V. v. Kingdom of Spain (which also addressed 9Ren v. Spain, Blasket Renewable Investments v. Spain and a group of Crimea-related arbitration awards against Russia) cements the U.S. Court of Appeals for the District of Columbia Circuit's August 2024 decision holding that U.S. courts may exercise jurisdiction to enforce arbitral awards under the Energy Charter Treaty (ECT) in disputes between EU investors and EU Member States, notwithstanding the European Court of Justice's decisions in Achmea[1] and Komstroy.[2] Doing so put the U.S. on equal footing with courts around the world that have rejected the "intra-EU" defense, as have the vast majority of arbitral tribunals to consider it. For award creditors, the message is clear: If enforcement of intra-EU awards is unavailable in the EU, U.S. courts remain a readily available forum for enforcement.

The DC Circuit Court's Decision

In NextEra, the D.C. Circuit addressed whether U.S. courts have jurisdiction under the Foreign Sovereign Immunities Act (FSIA) to enforce intra-EU arbitral awards.[3] The court unanimously held that the FSIA's arbitration exception applied, rejecting Spain's argument that EU law does not allow for the arbitration of disputes between EU Member States and EU-based investors, and thus, there was no agreement to arbitrate for the purpose of FSIA jurisdiction.[4] To invoke the arbitration exception under the FSIA, a court must identify (1) an arbitration agreement, (2) an arbitral award and (3) a treaty governing enforcement of the award.[5] The parties disputed only the first element - whether a valid arbitration agreement existed.[6] In finding that a valid arbitration had existed between Spain and the investors, the D.C. Circuit concluded that by entering into the ECT, Spain had manifested its consent to arbitrate.[7] The court explained that the ECT extended a standing offer to arbitrate disputes between Contracting States and investors, which Contracting States agreed to and investors then accepted by commencing arbitration.[8] Although the court emphasized that its holding is jurisdictional and does not guarantee enforcement in every case, it nonetheless establishes the principle that EU Member States cannot rely on a sovereign immunity defense based on the intra-EU objection to block U.S. enforcement proceedings arising from ECT awards.[9]

Practical Implications for ECT Award Creditors

The D.C. Circuit's decision and the Supreme Court's denial of certiorari have immediate and practical significance for investors seeking to enforce their intra-EU awards.

First, intra-EU award creditors are able to proceed directly to confirmation and enforcement in U.S. courts, knowing that a sovereign immunity defense based on the intra-EU objection by an EU Member State is likely to fail.

Second, U.S. courts' strong pro-enforcement posture toward arbitral awards means that, once jurisdiction is established, enforcement is a straightforward process. This is particularly true for ICSID awards, which benefit from a self-contained regime that precludes domestic courts from revisiting the tribunal's jurisdictional determinations.

Finally, the most important implication is that the U.S. provides greater options and a higher likelihood of success for enforcing upon assets of the sovereign debtor, while enforcement against assets located within the EU becomes more difficult as the courts of EU Member States must recognize the prohibition on intra-EU arbitration agreements.

Taken together, these developments reinforce a clear strategic pathway: Where enforcement in the EU is constrained following Achmea and Komstroy, award creditors should look to U.S. courts as a viable - and increasingly important - forum to pursue recovery against EU Member State assets.

Recognized as a Band 1 "Highly Regarded" International Arbitration practice by Chambers Global, BakerHostetler's International Arbitration and Litigation team represents clients across the full spectrum of international dispute resolution, including arbitration, litigation and enforcement. We have extensive experience advising investors on enforcing arbitral awards against sovereigns and pursuing recovery against assets in the U.S., and we represented a group of distinguished International Scholars as amici before the D.C. Circuit in the NextEralitigation. Where enforcement options are limited elsewhere, our team is well positioned to help clients pursue effective enforcement in U.S. courts.

[1] Case C-284/16, Slovak Republic v. Achmea, ECLI:EU:C:2018:158 (Mar. 6, 2018).

[2] Case C-741/19, Moldova v. Komstroy LLC, EU:C:2021:655 (Sept. 2, 2021).

[3] NextEra Energy Glob. Holdings B.V. v. Kingdom of Spain, 112 F.4th 1088, 1099 (D.C. Cir. 2024).

[4] Id. at 1111.

[5] Id. at 1100.

[6] Id. at 1101.

[7] Id. at 1102.

[8] Id.

[9] Id. at 1111.