Austrian Company Wins Default Judgment Against Gabonese Republic in U.S. District Court
How the Austrian Company Successfully Sued under FSIA Following Non-Payment of Arbitration Award
Certified legal document translation and court interpreter services are required when foreign companies sue the governments of other foreign states under the FSIA in U.S. courts. VAMED Management und Service GMBH (“VAMED”), an Austrian company, filed an action in the U.S. District Court for the District of Columbia for a default judgment and confirmation of an arbitration award against the Gabonese Republic. Gabon neither participated in the proceedings nor made any appearance. The Court granted VAMED’s motion in the case of VAMED Management und Service Gmbh v. Gabonese Republic, Civil Case No. 22-3737 (RJL), 2024 WL 1092232 (D.D.C. Mar. 13, 2024).
What Led to the International Dispute?
VAMED is a global provider of facility management services for hospitals and other healthcare-related institutions. The company entered into nine contracts with Gabon between 2001 and 2013 to provide various services in Gabon’s hospitals. Six of these contracts included arbitration clauses for disputes to be resolved in Geneva under International Chamber of Commerce (“ICC”) rules, while the remaining contracts called for arbitration in Zurich or the Hague. Gabon failed to fully pay VAMED for its services, leading VAMED to initiate three separate arbitrations in 2018. These were later consolidated into a single arbitration in Zurich.
Parties Attempt to Resolve Dispute with New Agreement
During the consolidated arbitration, VAMED and Gabon attempted to resolve the dispute through a new agreement. This agreement included a new payment schedule and also included an arbitration clause that called for arbitration in Zurich under ICC rules. Gabon initially adhered to the new payment schedule, which led the parties to suspend the existing consolidated arbitration in 2020. Later Gabon defaulted, causing the arbitration to resume. Throughout the arbitration, Gabon neither challenged the tribunal’s jurisdiction nor did Gabon deny its obligations.
VAMED Wins Arbitration Award After Gabon Again Fails to Pay
In March 2022, the arbitral tribunal ruled in favor of VAMED, awarding it €2,581,870.64 with 8% interest from October 2021, and €33,453.18 with 5% interest for arbitration costs. The tribunal also awarded Gabon €5,000 for legal costs, resulting in a net award to VAMED of €2,610,323.82.
Since Gabon did not pay any part of the award, VAMED filed an action in the U.S. District Court for the District of Columbia to confirm the arbitration award against Gabon under the New York Convention, an international treaty codified in the Federal Arbitration Act (“FAA”). VAMED served Gabon with notice of the action and the petition through DHL from the Clerk of the Court, with the delivery confirmed on February 27, 2023. After receiving no response for sixty-five days, VAMED filed an affidavit for default against Gabon, which the Clerk entered. Subsequently, VAMED filed a motion for default judgment.
Obtaining a Default Judgment Against a Foreign Sovereign
District courts can enter a default judgment against a party that fails to defend its case. Under the Foreign Sovereign Immunities Act (“FSIA”), the petitioner must present satisfactory evidence to establish its right to relief against a foreign sovereign. This means the court must not just accept unsupported allegations but must ensure it has both subject matter and personal jurisdiction over the defaulting sovereign before entering judgment. The court can rely on affidavits, declarations, and other documentary evidence to determine whether the petitioner satisfied its burden for a default judgment.
To obtain a default judgment against Gabon, VAMED had to demonstrate that (1) the court had subject matter jurisdiction, (2) personal jurisdiction over Gabon was proper, (3) satisfactory evidence supported VAMED’s claim, and (4) VAMED was entitled to the damages sought. All of these criteria were met in this case.
The FSIA’s Arbitration Exception
The FSIA is the exclusive means for bringing suit against a foreign state in U.S. federal courts, providing jurisdiction for nonjury civil actions where the foreign state is not entitled to immunity. This case was a nonjury civil action, Gabon was a foreign state, and VAMED sought in personam relief. Gabon would generally be immune under the FSIA, but exceptions exist, such as the “arbitration exception,” which applied in this case. The arbitration exception allows for jurisdiction in actions to enforce arbitration agreements or confirm arbitration awards governed by international treaties, such as the New York Convention.
Under 28 U.S.C. § 1605(a)(6), the arbitration exception requires proving three jurisdictional facts: (1) the existence of an arbitration agreement, (2) an arbitration award, and (3) a treaty governing the award. The petitioner must present evidence to support these facts, while the sovereign must rebut by proving the absence of these facts by a preponderance of the evidence.
The Court found that VAMED met its burden by providing copies of the original hospital contracts, the later agreement and the arbitral tribunal’s decision, which established the first two jurisdictional facts. Gabon had neither appeared in the case nor disputed the authenticity of these documents. Additionally, the New York Convention, a multilateral treaty ratified by both the United States and Switzerland (where the tribunal was seated), governed the award. Therefore, VAMED’s claims fell within the FSIA’s arbitration exception, which gave the Court subject matter jurisdiction.
Personal Jurisdiction Requires Proper Service on Gabon
Under the FSIA, district courts can exercise personal jurisdiction over a foreign sovereign if two conditions are met:
1. Subject Matter Jurisdiction: it existed for the claims in question, as discussed previously.
2. Proper Service: Service must be effected according to 28 U.S.C. § 1608(a), which lists four methods in order of preference.
Since VAMED had no special service arrangement with Gabon and there is no relevant treaty between the United States and Gabon, the first two methods of service were unavailable. VAMED then used the third method under 28 U.S.C. § 1608(a)(3), which involved sending the summons, complaint, and a notice of suit along with the English to French translations by mail dispatched by the Clerk of the Court and requiring a signed receipt to Gabon’s Minister of Foreign Affairs.
VAMED had the Clerk of Court send these documents via DHL to Gabon’s Minister of Foreign Affairs, who signed for the delivery on February 27, 2023. Gabon had until April 28, 2023, to respond but did not do so. This proper service under Section 1608(a)(3) granted the Court personal jurisdiction over Gabon.
Default Judgment on VAMED’s Claim
The Court found that VAMED was entitled to a default judgment confirming the arbitration award. The Court explained that the FAA, which codifies the New York Convention, strongly favors the enforcement of foreign arbitral awards, giving the court little discretion to refuse enforcement unless one of the Convention’s seven grounds for denial is present.
Five of these grounds require the resisting party to provide proof that the award should not be confirmed. The remaining two allow the court to deny confirmation if the dispute is not arbitrable under local law or if enforcing the award would violate public policy. In this case, Gabon had not appeared or provided any arguments or proof against the award. The Court found the dispute to be a typical commercial matter suitable for arbitration in the U.S., and enforcing the award did not conflict with U.S. public policy. Given the strong federal policy favoring arbitration and VAMED’s compliance with procedural requirements, the court concluded that a default judgment confirming the arbitration award was justified.
What Exchange Rate Should be Applied When Calculating the Award in U.S. Dollars?
The Court calculated the total amount due to VAMED from Gabon under the arbitral award. The tribunal’s final order directed Gabon to pay:
• €2,581,870.64 as compensation for hospital contracts, with 8% annual interest from October 14, 2021, until full payment.
• €33,453.18 for legal costs, with 5% annual interest from March 21, 2022, until full payment.
• After offsetting €5,000 Gabon was owed in legal costs from the sums granted to VAMED, the final amount awarded to VAMED was €2,610,323.82, excluding accrued interest.
Gabon had not made any payments towards this award, nor had VAMED paid the €5,000 to Gabon.
VAMED requested that the amount be converted to U.S. Dollars at the exchange rate on the date of the award, given the depreciation of the Euro. The court agreed and applied the exchange rate on the date of the award – the higher amount. This way, the VAMED could be made whole and Gabon would not be rewarded for late payment.
VAMED also requested prejudgment interest from the date of the award to the present, using the arbitral tribunal’s specified rates—8% for the first sum and 5% for the second sum. These rates were deemed appropriate by the Court because they aligned with promoting settlement and deterring delays.
The final calculation, including the applicable exchange rate and interest rates, totaled $3,527,347.70. The Court also held that VAMED was entitled to post-judgment interest at the federal rate until full payment.
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