Following Russia's 2014 invasion of Crimea, Russian and Crimean forces seized and nationalized the assets of two Ukrainian entities: JSC DTEK Krymenergo, an electricity distributor, and a group of companies operating petrol stations. These companies sought recourse under the 1998 Agreement Between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments, which promised protection against uncompensated expropriation and offered arbitration for disputes. Arbitral tribunals awarded the companies over $240 million in damages, finding Russia had breached the treaty. When the companies sought to enforce these awards in the U.S. District Court for the District of Columbia, Russia moved to dismiss, arguing it retained sovereign immunity under the Foreign Sovereign Immunities Act (FSIA) and that the U.S. courts lacked personal jurisdiction due to a lack of minimum contacts with the United States. The district court rejected these arguments, and Russia appealed, challenging the court's subject-matter and personal jurisdiction.
The court analyzed the case under the FSIA's arbitration exception, which requires three elements: an arbitration agreement, an arbitration award, and a treaty potentially governing enforcement. First, the court held that Russia's agreement to arbitrate under the Investment Treaty was sufficient to satisfy the first element. The court distinguished between the existence of an agreement (a jurisdictional question) and the scope of that agreement (a merits question). Russia's argument that the treaty did not cover investments in Crimea went to the scope of the arbitration clause, not its existence, and thus did not defeat jurisdiction. Second, the court confirmed that valid arbitral awards had been issued, satisfying the second element. Third, the court addressed whether the New York Convention potentially governed the awards. Russia argued the awards were 'political' rather than 'commercial.' The court rejected this, defining 'commercial' broadly to include relationships arising out of commerce. The seizure of an electricity grid and petrol stations constituted commercial activity, regardless of the geopolitical context. The tribunals did not resolve sovereignty disputes but applied the treaty to commercial conduct in territory under Russia's de facto control. Regarding personal jurisdiction, the court reaffirmed that foreign states are not 'persons' protected by the Fifth Amendment's Due Process Clause. Citing Supreme Court precedent, the court held that once an FSIA exception applies and service is proper, personal jurisdiction exists. Russia's reliance on due process protections was therefore foreclosed.
The decision allows Ukrainian companies to proceed with enforcing arbitral awards against Russian state assets in U.S. courts. It clarifies that the FSIA's arbitration exception is satisfied by a prima facie showing of an agreement and award, without requiring a final determination that the treaty covers the specific dispute. The ruling also solidifies that foreign sovereigns cannot invoke Fifth Amendment due process to challenge personal jurisdiction when an FSIA exception is met. The case is remanded to the district court to proceed with the enforcement of the awards.