If Webuild It, Will Award Creditors Still Come? Recent Delaware Decision Complicates Efforts to Enforce Arbitral Awards in the U.S. Against Creative Debtors

The ‘Enforcement Case of the Month’ is a series authored by New York-based Investment Managers Gabe Bluestone and Jeff Newton, discussing recent U.S. court decisions and assessing their impact on judgment/award enforcement strategies and asset recovery efforts globally.

The United States has long purported to be a champion of arbitration. This stance is embodied both in the “pro-arbitration” Federal Arbitration Act enacted by Congress nearly a century ago and in U.S. treaties providing for the recognition of international arbitration awards. The U.S. likewise boasts rich jurisprudence regarding personal jurisdiction, defining when parties can be hauled into court in this country. But what happens when these two principles collide, for example, when a foreign losing party to an international arbitration merges into another entity that has property in the U.S. that can be used to satisfy an adverse award?

The U.S. District Court for the District of Delaware recently confronted this situation in Sociedad Concesionaria Metropolitana de Salud S.A. v. Webuild S.P.A. There, the court rendered a decision that—if taken literally—could significantly limit the ability of arbitral award holders to enforce awards against creative adversaries and serve as a boon to award debtors seeking to avoid their obligations.

In Webuild, the underlying arbitration involved a contract between Sociedad Concesionaria Metropolitana de Salud S.A. (“SCMS”) and an Italian construction company called Astaldi S.p.A. to build a hospital in Santiago, Chile. A dispute ensued. Following an arbitration seated in Santiago CMS secured an award in January 2022 against Astaldi that now exceeds $140 million with interest. The award is no longer subject to vacatur or set aside after Astaldi’s unsuccessful challenge in the courts of Chile. During the pendency of the arbitration, Astaldi entered insolvency proceedings in Italy, and, per an agreement dated July 2021, merged into Webuild, a multinational Italian construction company. As alleged by SCMS, Webuild continues to operate Astaldi’s construction, infrastructure, and engineering businesses to this day.

In October 2023, SCMS filed suit in the District of Delaware, seeking to recognize the award and enforce it against Webuild under a successor liability theory. SCMS asserted a quasi in rem jurisdictional theory based on Webuild’s ownership of the shares of Webuild’s U.S. subsidiary, Webuild U.S., which is domiciled in Delaware. Webuild moved to dismiss, arguing that the U.S. courts lacked personal jurisdiction over Webuild because its mere ownership of Webuild U.S. shares was insufficient to confer jurisdiction where that property was not related to the underlying dispute giving rise to the arbitration. In other words, Webuild argued that an insufficient nexus existed between Webuild’s forum contacts and the underlying substantive claim advanced by SCMS.

In an opinion dated September 27, 2024, the district court granted Webuild’s motion to dismiss for lack of personal jurisdiction. The court observed that the U.S. Supreme Court’s decision in Shaffer v. Heitner—well known to first-year civil procedure students—held that “mere presence of property owned by a non-resident defendant in the forum state is insufficient to support quasi in rem jurisdiction for a claim unrelated to the property.” The court was not swayed by footnote 36 of the Shaffer opinion, which provides:

Once it has been determined by a court of competent jurisdiction that the defendant is a debtor of the plaintiff, there would seem to be no unfairness in allowing an action to realize on that debt in a State where the defendant has property, whether or not that State would have jurisdiction to determine the existence of the debt as an original matter.

The Webuild court appeared to eschew this portion of Shaffer’s holding because SCMS was only seeking to recognize an arbitration award, and not a court judgment, and because that award was against the predecessor of Webuild and not Webuild itself. As a result, the court concluded, SCMS was out of luck seeking to enforce its award against Webuild’s Delaware-based property. The court’s five-page opinion reached that conclusion without meaningfully engaging with SCMS’s argument that Webuild is the successor to Astaldi, and therefore properly considered the debtor on the award.

This decision, if taken literally, could undercut the U.S.’s image as a pro-arbitration jurisdiction by complicating creditors’ efforts to enforce awards against property here. Indeed, the result in Webuild would seem to practically invite award debtors to insulate assets from collection by transferring them to U.S. entities unconnected to the underlying dispute, and then assert a lack of quasi in rem jurisdiction for creditors’ attempts to enforce an award against those assets.

Crediting arguments like this would sit uneasily with other long-standing rules and lead to bizarre scenarios. For example, the decision in Webuild could be interpreted to direct award creditors to go to court in another country for the sole purpose of determining whether assets in the U.S. could be seized in satisfaction of an award. But American courts have long held that, in general, title to real property can only be seized or transferred by the courts of the jurisdiction in which the property lies.¹ Where a debtor is completely uncooperative in enforcement proceedings, this sort of direct court intervention can be all the more necessary. Likewise, in applying the doctrine of forum non conveniens—which is animated by many of the same principles as personal jurisdictional cases—American courts have rejected sovereign debtors’ attempts to escape U.S. courts, because only American courts can determine whether sovereign property in the U.S. can be seized.² These precedents making U.S. courts central to the disposition of U.S.-based property are difficult to square with Webuild’s abdication of that role. Read literally, Webuild could put award creditors in a jurisdictional Catch-22 where only foreign courts are empowered to declare creditors’ entitlement to property in the U.S., but those foreign courts are powerless to actually effectuate that relief.

The logic of Webuild also seems to run counter the reasoning of cases allowing jurisdictional flexibility where a creditor seeks to expand the liability for an award, for example by disregarding the separateness of different entities. It appears undisputed that jurisdiction over a foreign party can be premised on the local presence of an alter ego of that party.³ In many cases, that alter ego analysis involves the application of the law of the jurisdiction in which the parties are incorporated—which may not be the U.S. Of course, an alter ego claim is just a legal fiction used to transpose a theory of jurisdiction or liability nominally against one party to another party. It is puzzling, and not immediately apparent, why the same flexibility should not be extended to the legal fiction of successor liability, even if (like alter ego analyses) that could require the interpretation of non-U.S. law. After all, successor liability is simply another road to the same result as the alter ego doctrine.

So how can courts balance jurisdictional due process concerns with an openness to enforcing arbitration awards? The answer can be found in the proper framing of award recognition and enforcement proceedings in the first place. At a basic level, the Webuild court found there was an insufficient nexus between Webuild U.S. and SCMS’s claims in the underlying arbitration.⁴ But that is a puzzling framing of a recognition and enforcement proceeding. To the contrary, as the U.S. Court of Appeals for the D.C. Circuit explained mere months ago, “[c]onfirmation proceedings [under the New York Convention] . . . are not vehicles to relitigate issues in the arbitration.”⁵ In other words, the issues presented by confirming an award are not the same as the issues raised by the dispute that led to the award. Understood in this way, presence of property in a jurisdiction should be a sufficient premise for quasi in rem jurisdiction to confirm and enforce an award, and to answer intertwined questions about a creditor’s entitlement to property in the jurisdiction.⁶ After all, the presence of executable property in a jurisdiction is ordinarily the raison d’être of the confirmation and enforcement proceeding in the first place, and entitlement to the local property (not the merits of the underlying arbitration) is the gravamen of the dispute at that stage. Viewed through this lens, such proceedings are not “unrelated to the property” and, under the bare language of Shaffer, quasi in rem jurisdiction would be appropriate.

But creditors have additional possible workarounds. For example, where the facts exist to support them, award creditors could bolster their enforcement efforts with additional substantive claims against entities within the U.S. courts’ jurisdiction, such as fraudulent transfer, alter ego, constructive trust, or, in extreme cases, RICO claims.⁷ These additional claims, if viable and sufficiently tethered to a U.S.-based entity or property may be enough to tip the scales in the jurisdictional analysis.

If it is appealed to the U.S. Court of Appeals for the Third Circuit, the recent decision may not be the last word on the question. But unless and until the decision is amended, award creditors should remain aware of the Webuild precedent—and the arguments against its reasoning—when attempting to enforce awards against creative award debtors in the United States.