Enforcing International Arbitration Agreements: The Anti-Suit Injunction Remedy

Copyright 2009.  All rights reserved. 


When a party to a valid international arbitration agreement refuses to enter arbitration over a dispute and pursues a foreign suit instead, several remedies may be available in the United States in addition to those listed under the Federal Arbitration Act.[1] One of these remedies is an anti-suit injunction. Courts in the United States have the power to issue anti-suit injunctions to prevent persons subject to their jurisdiction from prosecuting foreign suits. This is well established.[2] And a party who does not comply with an anti-suit injunction can be subject to contempt sanctions.[3]

Some courts also appear willing to issue an anti-suit injunction if a party is avoiding the arbitration process by bringing an arbitrable case before a foreign court. In this area, the case law is still developing. This article will examine the threshold requirements and applicable legal standards for anti-suit injunctions in general, and then look at how federal courts have treated requests for anti-suit injunctions when valid international-arbitration agreements are involved. The article ends with an analysis of the current state of the law. The analysis will show that all courts might not treat anti-suit injunctions the same when a recalcitrant party is undermining an arbitration agreement.      

I. The Legal Standard for an Anti-suit Injunction

In order to issue an anti-suit injunction against someone, an American court must of course have personal jurisdiction over the party who will be enjoined.[4] Two threshold requirements must also be satisfied before a court can order the injunction: (1) the American and foreign cases must involve the same parties and (2) they must deal with the same issues.[5] Beyond these basic threshold requirements there is a difference of opinion among the federal circuits on the standard to apply when determining whether to grant an anti-suit injunction. The First, Second, Third, Sixth, Eighth, and D.C. Circuits adopt the so-called "conservative" approach, while the Fifth, Seventh, and Ninth Circuits follow the "liberal" approach.[6]

Circuits that adopt the conservative approach place great weight on international comity, which is a somewhat vague concept. International comity has been described by courts as the recognition that one nation extends within its own territory to the legislative, executive, or judicial acts of another nation, and this recognition "should be withheld only when its acceptance would be contrary or prejudicial to the interest of the nation called upon to give it effect."[7] Because preventing a party from pursuing a claim in a foreign court effectively restricts the foreign court's jurisdiction, courts following the conservative approach grant anti-suit injunctions only in rare cases.[8]

The two critical questions when applying the conservative approach are whether the foreign case (1) imperils the jurisdiction of the domestic court or (2) threatens some strong national policy.[9] Some courts adopting this approach have suggested that an anti-suit injunction should be granted only when one or both of these critical questions are answered in the affirmative.[10] Other courts following the conservative approach conservative are not quite as categorical. These courts still place great weight on comity, but they are also willing to look to factors such as the nature of the two cases and good faith conduct of the parties (or lack thereof) when deciding on an anti-suit injunction request.[11]

In comparison, courts following the liberal approach place greater emphasis on equitable considerations than international comity.[12] These considerations include whether the foreign litigation is vexatious and oppressive and whether it may lead to duplicative efforts, inconvenience, delay, harassment, inconsistent results, or a race to judgment.[13] Because of the emphasis on equitable considerations courts adopting the liberal approach grant anti-suit injunctions more readily than courts following the conservative approach.[14]

II. Anti-suit Injunctions in the Enforcement of Valid International Arbitration Agreements

A. The Conservative Approach: The Paramedics Case

Despite the difference of opinion, federal courts in the United States appear willing to grant an anti-suit injunction alongside an order to compel arbitration. The seminal case on this issue comes from the Second Circuit, where the conservative approach is followed. In Paramedics Electromedica Comercial Ltda. v. GE Medical Systems Information Technologies, Inc.,[15] GE Medical Systems Information Technologies ("GEMS-IT") invoked the arbitration agreement it had with Brazilian distributor Paramedics Electromedicina Comercial (known as "Tecnimed").  Tecnimed then proceeded to commence a lawsuit against GEMS-IT in Brazil and petitioned in New York state court for a permanent stay of arbitration. GEMS-IT removed the petition to federal court and requested an order compelling arbitration and an anti-suit injunction against the Brazilian case. Both requests were granted by the federal district court. When Technimed failed to comply fully with the anti-suit injunction, the district court held Tecnimed in contempt and issued sanctions. Tecnimed appealed the anti-suit injunction and contempt rulings.

On appeal, the Second Circuit upheld on appeal the district court's anti-suit injunction. The court explained that "[t]he federal policy favoring the liberal enforcement of arbitration clauses [ . . . ] applies with particular force in international disputes."[16] While acknowledging that comity "weigh[s] heavily in the decision to impose foreign anti-suit injunction", the court held that considerations of comity have diminished force where the domestic court has already decided the issues pending before the foreign court; once an order for arbitration has been rendered by the domestic court, an anti-suit injunction may be needed to protect that court's jurisdiction.[17] An anti-suit injunction was proper, in other words, because the two critical questions when applying the conservative approach-the jurisdiction of the court and national policy-have been answered in the affirmative.

B. The Liberal Approach: The Affymax Case

Courts following the liberal approach reach a similar conclusion on issuing anti-suit injunctions in order to protect arbitration rights, but their reasoning differs somewhat from the conservative approach courts. The case Affymax Inc. v. Johnson & Johnson[18] is instructive. In that case, drug developer Affymax demanded ownership of a patent application and brought a vindication action in German court against health care products company Johnson & Johnson and the company's subsidiaries. Affymax then filed a lawsuit in the Northern District of Illinois, asserting patent and breach of contract claims. In response, the defendants requested the court to compel arbitration and prevent Affymax from continuing its lawsuit in Germany.

The Northern District granted the request to compel arbitration and issued an anti-suit injunction against Affymax. In issuing the injunction, the court noted that the Seventh Circuit has held that an anti-suit injunction is proper if the domestic and foreign cases are "gratuitously duplicative".[19] The court also concluded from a survey of cases that "an anti-suit injunction is most compelling when a party seeks to both enforce a judgment and avoid duplicate litigation."[20] Here, the court has a significant interest in enforcing the order to compel arbitration, and an anti-suit injunction would allow the court to do so.[21] In addition, the German lawsuit and the arbitration would occur simultaneously in the absence of an anti-suit injunction.[22] The issuance of the anti-suit injunction, therefore, would achieve the two goals of judgment enforcement and the avoidance of duplicate litigation.[23] 

C. Contours and Limits to the Anti-Suit Remedy? The LAIF X Case

While never stating so explicitly, cases such as Electromedica and Affymax suggest a strong link between an order to compel arbitration and an anti-suit injunction: Where there is an order to compel arbitration, an anti-suit injunction is likely to follow. The case LAIF X SPRL v. Axtel, S.A. de C.V.[24] suggests that the converse may to be true also, at least in courts where the conservative approach is followed: If the court does not issue an order to compel arbitration, an anti-suit injunction will not follow. In that case, LAIF X and Telinor Telofonia ("Telinor") are foreign shareholders in the Mexican corporation Axtel. Pursuant to the corporation's bylaws, LAIF X filed a demand for arbitration in New York before the American Arbitration Association over a share dilution claim. Before answering the demand, Telinor brought a suit in a Mexican court contesting LAIF X's title to Axtel shares. After Telinor answered the arbitration demand, LAIF X filed a suit in the Southern District of New York seeking an order to compel arbitration and an anti-suit injunction. The Southern District denied LAIF X's requests.

The Second Circuit upheld the district court's ruling on appeal. The circuit court held that an order to compel arbitration is not necessary here because LAIF X is not refusing arbitration. The commencement of the Mexican lawsuit alongside the arbitration does not constitute a refusal to arbitrate, because "where foreign law governs an issue that bears on standing to arbitrate, the submission of that issue to the competent foreign court, without more, does not constitute a refusal to arbitrate."[25]      

The Second Circuit also upheld the denial of LAIF X's request for an anti-suit injunction, citing the considerations of comity, the lack of a threat to the strong policy of the domestic court, and again noting that Telinor is participating in the arbitration.[26] Regarding the lack of a policy threat, the court stated that "the legal relationship between a Belgian investor [LAIF X] and a Mexican enterprise in no way implicates ‘the strong public policies of the enjoining forum,' which is the Southern District of New York."[27]

III. In Close Situations, the Court Where an Anti-suit Injunction is Sought Makes a Difference

The Electromedica and Affymax cases demonstrate that, in situations where a court has issued an order to compel arbitration, an anti-suit injunction will likely follow if the recalcitrant party has filed arbitrable claims before a foreign court. Although the courts apply different standards when determining whether to issue an anti-suit injunction, their decisions in such situations do converge in support of enforcing arbitration rights.

However, because courts have indicated that an order to compel arbitration should only be issued when a party has demonstrated an unequivocal refusal to arbitrate,[28] less clear is whether a court will issue an anti-suit injunction where a valid arbitration agreement exists, but the court does not issue an order to compel arbitration. Although never explicitly holding so, the Laif X case suggests that the answer from the conservative approach courts might be, "No." The Laif X Court explained that Telinor was not violating the arbitration agreement under the facts of the case. But the court does not limit its ruling to the facts of the case, and its logic could give rise to a loophole scenario whereby a party is permitted to participate in arbitration while simultaneously filing a lawsuit in breach of the arbitration agreement.[29]

Should such a scenario occur, it might make a difference which court is being asked to consider an anti-suit injunction. Courts following the liberal approach have not had the opportunity to decide on a case that is similar to Laif X, and the Affymax case did not state whether one of the two goals (enforcing judgments or avoiding duplicate litigation) to an anti-suit injunction is sufficient by itself to warrant the injunction. But these courts might be swayed more than the conservative courts by the argument that a foreign lawsuit concurrent with an ongoing arbitration proceeding undermines the arbitration process because the lawsuit is vexatious, oppressive, and gratuitously duplicative. Outside of the international arbitration context, the liberal approach courts have certainly granted anti-suit injunctions when the foreign case would undermine a fair and efficient determination to a dispute.[30] Because liberal approach courts give less weight to vague considerations of comity,[31] the party enforcing its arbitration rights might have an easier time persuading these courts to view an anti-suit injunction simply as a means of enforcing contractual obligations also. The party should remind a court that, regardless of whether the court's only connection with the parties is through the site of arbitration, there is still a strong federal policy favoring the liberal enforcement of international arbitration agreements.[32]    

[1] Under the Federal Arbitration Act, a party wishing to enforce its arbitration rights may ask a U.S. federal court to stay its proceedings or petition the court having jurisdiction for an order to compel arbitration. 9 U.S.C. §§ 3-4 (2008).
[2] E.g., Karaha Bodas Co. v. Negara, 335 F.3d 357, 364 (5th Cir. 2003).
[3] A. Heritage Life Ins. Co. v. Orr, 294 F.3d 702, 714 n.5 (5th Cir. 2002).
[4] Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 626 (5th Cir. 1996).
[5] See, Paramedics Electromedicina Comercial, LTDA v. GE Med. Sys. Info. Techs., 369 F.3d 645, 652 (2nd Cir. 2004) (citing China Trade & Dev. Corp. v. M.V. Choong Yong, 837 F.2d 33, 37 (2nd Cir. 1987);  Storm LLC v. Telenor Mobile Commc'ns, AS No.06 Civ 13157, 2006 WL3735657 (S.D.N.Y. Dec. 15, 2006); Microsoft Corp. v., Inc., (W.D. Wash. 2004).
[6] Goss Int'l Corp. v. Man Roland Druckmaschinen Aktiengesellschaft, 491 F.3d 355, 360-61 (8th Cir. 2007) (discussing split among the circuits).
[7] Stonington Partners v. Lernout & Hauspie Speech Prods. N.V., 310 F.3d 118 (3rd Cir. 2002).
[8] Republic of the Philippines v. Westinghouse Elec. Corp., 43 F.3d 65, 76 (3rd Cir. 1994).
[9] GE v. Deutz AG, 270 F.3d 144, 160 (3rd Cir. 2001).
[10] Id. at 160 ("[The conservative approach] courts approve enjoining foreign parallel proceedings only to protect jurisdiction or an important public policy.") (emphasis added).
[11] Quaak v. Klynveld Peat Marwich Goerdeler Bedrijfsrevisoren, 361 F.3d 11, 18-19 (1st Cir. 2004); GE, 270 F.3d at 160.
[12] See Allendale Mut. Ins. Co. v. Bull Data Sys. Inc., 10 F.3d 425, 431 (7th Cir. 1993) ("The [conservative approach] presume[s] a threat to international comity whenever an injunction is sought against litigating in a foreign court. The [liberal approach] want[s] to see some empirical flesh on the theoretical skeleton.")
[13]Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 627-28 (5th Cir. 1996); Seattle Totems Hockey Club Inc. v. Nat'l Hockey League, 652 F.2d 852, 856 (9th Cir. 1981).
[14] See Philips Medical Systems Intern. B.V. v. Bruetman, 8 F.3d 600, 605 (7th Cir. 1993) ("we have difficulty seeing why the usual and by no means stringent rules for limiting duplicative litigation should stop at international boundaries"); Seattle Totems Hockey Club, Inc,. 652 F.2d at 856.
[15] 369. F.3d 645.
[16] Id. at 654.
[17] Id. at 654-55.
[18] 420 F. Supp. 2d 876 (N.D. Ill. 2006).
[19] Id. at 883 (quoting Allendale Mut. Ins. Co., 10 F.3d at 431).
[20] Id. at 884.
[21] Id.
[22] Id.
[23] Id.
[24] 390 F.3d 194 (2nd Cir. 2004).
[25] Id. at 199.
[26] Id. at 200.
[27] Id.
[28] See PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1066 (3rd Cir. 1995) (an action to compel arbitration accrues "only when the respondent unequivocally refuses to arbitrate, either by failing to comply with an arbitration demand or by otherwise unambiguously manifesting an intention not to arbitrate the subject matter of the dispute").
[29] For a similar argument see Daniel Tan, Enforcing International Arbitration Agreements in Federal Courts: Rethinking the Court's Remedial Powers, 47 Va. J. Int'l L. 545, 566-68 (2007).
[30] See Kaepa, Inc., 76 F.3d at 627 ("a district court does not abuse its discretion by issuing an antisuit injunction when it has determined ‘that allowing simultaneous prosecution of the same action in a foreign forum thousands of miles away would result in ‘inequitable hardship' and ‘tend to frustrate and delay the speedy and efficient determination of the cause.'") (citations omitted).
[31] See Id. ("We decline . . . to require a district court to genuflect before a vague and omnipotent notion of comity every time that it must decide whether to enjoin a foreign action.").
[32] See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 638-40 (1985); Smith/Enron Cogeneration Ltd. P'ship v. Smith Cogeneration Int'l Inc., 198 F.3d 88, 92 (2nd Cir. 1999). See also E. & J. Gallo Winery v. Andina Licores S.A., 446 F.3d 984 (9th Cir. 2006) (holding that there is a strong policy in the United States to enforce forum selection clauses and noting that English courts routinely grant anti-suit injunctions when forum selection clauses are violated).

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