First Investment Corp of the Marshall Islands v. Fujian Mawei Shipbuilding, Ltd. et al., Civil Action No. 09-3663 (E.D. La. June 2011), addresses the interesting international practice question under what circumstances may a non-sovereign assert a sovereign immunity defense. In this case, the international litigation issues are even more deserving of consideration, since the sovereign had defaulted.
The Fujian Respondents were non-sovereign entities. The People’s Republic of China is also a defendant/respondent. Earlier in the case the Court had confirmed a final arbitral award against the Fujian Respondents and China. Default judgments had been entered against all Defendant-Respondents, and the parties agreed to set aside the default of the Fujian Respondents. China did not appear, and the question was whether the Fujian Respondents could assert the sovereign immunity defense that China would or might have to confirmation or enforcement of the arbitral award.
The Court held that, typically, parties “other than a foreign sovereign ordinarily lack standing to raise the defense of sovereign immunity” (quoting Aquamar S.A. v. Del Monte Fresh Produce N.A., 179 F.3d 1279 (11th Cir. 1999)). Where, however, the court’s jurisdiction rests on the presence of the sovereign, the court “may address the issue independently”.
In this case, the Court had federal question jurisdiction under the Federal Arbitration Act since the Plaintiff-Petitioner was seeking to enforce an non-U.S. arbitral award under 9 U.S.C. § 203. That would ordinarily mean that the Fujian Respondents could not raise China’s sovereign immunity defense. However, reasoned the Court, in the case of a sovereign, a default judgment could not be entered on the same basis as a court could enter a default judgment against a non-sovereign entity; among other things, 28 U.S.C. § 1608(e) provides that a default judgment cannot be entered against a non-U.S. sovereign “unless the claimant establishes his claim or right to relief by evidence satisfactory to the court”. It is this provision that we have observed several times as requiring the court to hold independent evidentiary proceedings and make findings of fact and conclusions of law (we have posted several times on such independent evidentiary proceedings being undertaken by the District of Columbia District Courts before entering defaults against non-U.S. sovereigns).
Accordingly, since the Fujian Respondents had expressed their intent to challenge the validity of the arbitration award itself, the Court found that a default against China was inappropriate and that any default judgment proceeding would have to done in accordance with 28 U.S.C. § 1608(e).