Samsung Group Investor Moves to Confirm Arbitration Award Against Korea

Mason Capital L.P. and Mason Management LLC filed a petition to confirm a $30 million arbitration award against the Republic of Korea before the U.S. District Court for the District of Columbia on Friday, May 24, 2024. Petitioners also seek to confirm an award of more than $10 million in costs and fees related to the arbitration.

The arbitration arose out of Petitioners investments subject to the Free Trade Agreement between Korea and the United States (the "FTA"). Specifically, Petitioners acquired publicly traded shares in Samsung Electronics, Inc. and Samsung C&T. Petitioners allege that they acquired shares in SEC and SC&T, believing that incoming reform to Samsung’s corporate governance would unlock value for all Samsung shareholders, including Mason itself. However, in 2014, Samsung began to change its governance structure and the market speculated that it would transition to a holding company structure. This happened in May 2015, when Samsung announced that Cheil Industries Incorporated will merge with Samsung C&T. At the time, financial experts advised Samsung C&T stockholders to vote against the merger as it grossly undervalued the company and was solely aimed to allow Samsung Electronics, Inc.'s Vice Chairman to strengthen his control over Samsung under his family's succession plan while avoiding tax liabilities, the petition alleges. The merger was approved because Korea's National Pension Service, Samsung C&T's largest individual stockholder, voted in favor of the transaction despite the analysts' warnings. According to the petition, it was subsequently revealed during criminal proceedings in Korean courts that the President of Korea, Park Geun-hye, had financial interests in approving the merger and used his political influence to push for a vote in favor of the merger.

Petitioners initiated arbitration under the FTA, which concluded in their favor. The tribunal held that Korea breached the FTA in connection with the investments by Mason in Samsung and imposed on Korea obligations to pay Mason over $30 million in damages for losses, with interest, €630,000.00 in arbitration costs, with interest; and over $10 million in legal fees and expenses.

The case is Mason Capital L.P. et al. v. Republic of Korea, No. 24-cv-1551. Petitioners are represented by Abid R. Qureshi and Joseph V. Langkilde from Latham & Watkins LLP.

The petition can be downloaded below.

D.D.C. 24-cv-01551 dckt 000001_000 filed 2024-05-24.pdf

Download PDF • 232KB

Late Confirming Your Award? No Problem!

The Middle District of North Carolina confirmed a Dutch arbitration award, rejecting the respondents' argument that the petition to confirm was untimely because it came more than three years after the award was issued. Although the Fourth Circuit never reached this questions before, the Court explained that the language in the Federal Arbitration Award (FAA) governing foreign arbitral awards is similar to that governing domestic awards, and the Fourth Circuit held that the three-year confirmation window governing domestic awards is permissive rather than mandatory. Sverdrup Corp. v. WHC Constructors, Inc., 989 F.2d 148, 156 (4th Cir. 1993).

The award arises from a dispute related to a Dutch court's 2017 order demanding the transfer of De Nederlandsche Bank N.V.'s shares in Conservatrix to Trier Holding B.V., a Dutch corporation, with Mr. Lindberg, through NIH and NIH Capital, being the ultimate shareholder of Trier. Under European regulation and the Dutch Financial Supervision Act, insurance companies are required to maintain a solvency capital ratio of at least 100%. In March 2019, respondents agreed to maintain Conservatrix's minimum solvency capital ratio at 135%. However, in August 2019, a financial report showed Conservatrix's solvency capital ratio had fallen below the minimum threshold.

In response, Conservatrix initiated summary arbitral proceedings against the respondents before the Netherlands Arbitration Institute, seeking provisional relief to replenish the solvency capital ratio. The arbitral tribunal issued a detailed ruling and arbitral award on January 31, 2020, ordering respondent Trier to replenish the shortfall in Conservatrix's solvency capital ratio to 135%, with core equity contributions, and ordering other respondents to procure Trier's compliance. If they did not comply within 60 days, the tribunal ordered payment of €150 million to Conservatrix. A Dutch court promptly granted leave to enforce the arbitration award in February 2020. Despite subsequent appeals by Trier, including an appeal to the Supreme Court of the Netherlands, the attempts to nullify the award were denied. As of the latest update in March 2022, there has been no action in the main proceeding, indicating a standstill in the legal proceedings. Petitioner filed a petition to confirm the award in the Middle District of North Carolina in October 2023.

Section 207 of the FAA outlines the procedure for confirming foreign arbitration awards, stating that within three years of the award being made, any party to the arbitration may apply to a court for an order confirming the award against any other party. Respondents argue that because the petitioners filed their petition more than three years after the arbitrator entered the award, the petition should be dismissed. However, the Fourth Circuit has interpreted similar language in Section 9 of the FAA differently, finding that the one-year limitation period for domestic arbitrations is permissive rather than mandatory, allowing for confirmation of awards beyond the one-year period to encourage dispute resolution outside of federal court.

Although the Fourth Circuit has not specifically interpreted the three-year language in Section 207, the language in both Section 9 and Section 207 is nearly identical, stating that "any party to the arbitration may apply" to confirm the award within a specified time. At least one other court in the circuit has concluded that the time limitation in Section 207 is also permissive, citing the Fourth Circuit's reasoning in a similar case. Therefore, despite the Petitioners filing their petition more than three years after the arbitrator entered the award, the permissive nature of the three-year period outlined in Section 207 means that it does not serve as a bar to confirming the award beyond the three-year timeframe. Consequently, the Court denied Respondents' motion to dismiss based on a time bar. This holding is similar to that in First Kuwaiti Gen. Trading & Contracting W.L.L. v. Kellogg Brown & Root Int'l, Inc., No. 1:23-MC-1, 2023 WL 6221771, at *4 (E.D. Va. Sept. 22, 2023).

The case is Van Andel et al. v. Lindberg et al., No. 1:23-CV-879, 2024 WL 1860385 (M.D.N.C. Apr. 29, 2024).

Navigating the Maze: Jurisdiction in Cross-Border Enforcement Cases

When it comes to enforcing judgments or resolving disputes involving parties from different jurisdictions, one of the key challenges is determining where legal proceedings should take place. Jurisdiction in cross-border enforcement cases is a complex and multifaceted issue, influenced by a variety of factors including legal principles, international treaties, and practical considerations. In this article, we'll explore the intricacies of jurisdiction in cross-border enforcement cases and the challenges it presents to parties seeking to enforce their rights across borders.

Understanding Jurisdiction in Cross-Border Cases

Jurisdiction refers to the authority of a court to hear and decide a case. In cross-border enforcement cases, jurisdictional issues arise when parties from different countries are involved in a legal dispute or when the enforcement of a judgment or arbitration award extends beyond the borders of a single jurisdiction. Determining the appropriate jurisdiction in such cases involves considering various factors, including:

1. Subject Matter Jurisdiction: This refers to the court's authority to hear cases of a particular type or subject matter. In cross-border enforcement cases, the court must have jurisdiction over the subject matter of the dispute, which may involve issues such as contract law, torts, or intellectual property rights.

2. Personal Jurisdiction: Also known as "jurisdiction over the person," this refers to the court's authority to adjudicate the rights and obligations of the parties involved. Personal jurisdiction is often determined based on factors such as the defendant's presence or activities within the jurisdiction, consent to jurisdiction, or the effects of the defendant's actions within the jurisdiction.

3. In Rem Jurisdiction: This refers to the geographical boundaries within which a court has authority to hear cases. In cross-border enforcement cases, questions may arise regarding whether a court in one jurisdiction has the authority to enforce judgments or orders against assets located in another jurisdiction.

4. Forum Selection Clauses: Parties may agree in advance to submit to the jurisdiction of a particular court or to resolve disputes through arbitration. Forum selection clauses are commonly included in contracts and can significantly impact jurisdictional issues in cross-border enforcement cases.
   

Jurisdictional Challenges in Cross-Border Enforcement Cases

Navigating jurisdictional issues in cross-border enforcement cases can be fraught with challenges due to the diverse legal systems, conflicting laws, and procedural complexities involved. Some of the key challenges include:

1. Conflicting Jurisdictional Rules: Different countries have their own rules and principles governing jurisdiction, leading to potential conflicts when parties from multiple jurisdictions are involved in a dispute. Determining which jurisdiction's laws apply and which court has authority to hear the case can be contentious and may require careful analysis of applicable legal principles and international treaties.

2. Enforcement of Foreign Judgments: Even if a judgment is obtained in one jurisdiction, enforcing it in another jurisdiction can be challenging. The principles of comity and reciprocity govern the recognition and enforcement of foreign judgments, but each jurisdiction may have its own procedures and requirements for recognition and enforcement.

3. Lack of Uniformity: The lack of uniformity in jurisdictional rules and procedures across jurisdictions can create uncertainty and unpredictability for parties involved in cross-border enforcement cases. Harmonizing jurisdictional rules and promoting international cooperation are essential for addressing this challenge and facilitating the enforcement of judgments across borders.

4. Jurisdictional Disputes: Jurisdictional disputes between parties can prolong legal proceedings and increase costs. Parties may engage in "forum shopping" to seek a jurisdiction favorable to their interests or challenge the jurisdiction of a court in an attempt to delay or thwart enforcement efforts.
   

Although lack of personal jurisdiction is not one of the seven grounds on which confirmation may be denied under the New York Convention, U.S. courts have held that "dismissal of a petition under the New York Convention for lack of personal jurisdiction is appropriate as a matter of constitutional due process." See First Inv. Corp. of Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742, 748 (5th Cir. 2012), as revised (Jan. 17, 2013). "Because the New York Convention, through its implementing legislation, is an exercise of presidential and congressional power, whereas personal jurisdiction is grounded in constitutional due process concerns, there can be no question that the Constitution takes precedence." Id. at 749-750; see also Frontera Res. Azer. Corp. v. State Oil Co. of Azer. Rep., 582 F.3d 393, 397–98 (2d Cir.2009) (confirmation proceeding under New York Convention requires personal or quasi in rem jurisdiction over parties); Telcordia Tech Inc. v. Telkom SA Ltd., 458 F.3d 172, 178–79 (3d Cir.2006) (observing that “the New York Convention does not diminish the Due Process constraints in asserting jurisdiction over a nonresident alien”); Base Metal Trading, Ltd. v. OJSC “Novokuznetsky Aluminum Factory”, 283 F.3d 208, 212 (4th Cir.2002) (“[W]hile the [New York] Convention confers subject matter jurisdiction over actions brought pursuant to the Convention, it does not confer personal jurisdiction when it would not otherwise exist.”).

Once a defendant raises a personal jurisdictional defense, the “plaintiff bears the burden of proving by affidavits or other competent evidence that jurisdiction is proper. Permissible evidence to meet this burden must be more than an 'unverified complaint,' or bare allegations made 'upon information and belief.'" Simplot India LLC v. Himalaya Food Int'l Ltd., 2024 WL 1136791, at *4 (D.N.J. Mar. 15, 2024) (internal citations omitted). The District of New Jersey's opinion in Simplot comprehensively summarizes most common arguments for finding personal jurisdiction over a foreign entity in the context of a petition to confirm an arbitration award under the New York Convention.

The Alter Ego Theory of Personal Jurisdiction

"The contacts of a defendant company's alter ego may, under some circumstances, be treated as the defendant's contacts for the purposes of personal jurisdiction." Simplot, 2024 WL 1136791, at *5. In Simplot, the District of New Jersey refused to find that petitioners seeking to confirm an arbitration award established that the court had jurisdiction over the respondent because respondent had an alter ego operating in New Jersey. The court pointed out that U.S. courts usually start from a presumption of corporate separation between a parent company and its subsidiary, and respondents did not meet their burden to show that "[r]espondent exercises such 'complete domination' of finances, policy, and business practice over" the New Jersey entity. Id. at 6. Some jurisdictions, such as New Jersey, also require "some showing of fraud or injustice that would result in the absence of veil-piercing." Id. at 9. Petitioners in Simplot failed to show that as well.

Registration to Do Business in the State

The Simplot court also failed to find persuasive in this case the fact that respondents had registered to do business in New Jersey. Id. The court explained that "[w]hether corporate registration constitutes consent turns on the text of the state's registration statute." Id. In Pennsylvania, for example, "the statutory provision explicitly stating that qualification as a foreign corporation subjected the corporation to personal jurisdiction in the state or the provision explicitly listing 'consent' as a basis for jurisdiction supported a finding of personal jurisdiction over the corporate defendant." Id. Unfortunately for petitioners in Simplot, the New Jersey statute did not. Id.

Quasi In Rem Jurisdiction

The Simplot court also provided an overview of quasi in rem jurisdiction. The court explained that the U.S. "Supreme Court laid out the basics of the doctrine in Shaffer v. Heitner, 433 U.S. 186 (1977). A quasi in rem judgment 'affects the interests of particular persons in designated property,' including when a 'plaintiff seeks to apply what he concedes to be the property of the defendant to the satisfaction of a claim against him.'” Id. at *11. The rationale for quasi in rem jursidiction is that “a wrongdoer ‘should not be able to avoid payment of his obligations by the expedient of removing his assets to a place where he is not subject to an in personam suit.’ ” Id. The court noticed that cases applying this doctrine are rare, and viewed this as a warning that its application requires a careful approach. Id. Specifically, the court cautioned that this doctrine should apply only in cases where "the respondent's interest in the property that serves as the jurisdictional hook is clear." Id. The court contrasted those cases to the matter at hand where, per the court, respondents' interest in the assets -- held in the subsidiary's bank account in New Jersey -- was at best speculative, based on the fact that Respondents ship frozen food to the subsidiary, meaning that the subsidiary owe payments to Respondents.