In many debtor-creditor cases, especially international cases, the question inevitably arises as to what, if anything, can be done to obtain an injunction or otherwise restrict the debtor from moving his or her assets before judgment. The matter is important, because debtors often try to shield, hide or move their assets to avoid having to pay the judgment, especially international debtors that can escape to another jurisdiction.
There are mechanisms in U.S. law for restricting the debtor from moving assets before trial or judgment, but traditionally U.S. courts have been cautious to enjoin defendants from acting absent a showing of “irreparable harm.” Courts have often analyzed the question of “irreparable harm” as requiring more than mere difficulty in satisfying the judgment (although some courts have accepted this to be the standard also), and have required a showing that there is a strong likelihood of dissipation of assets or that the asset in question is truly unique for one reason or another.
The Miami-Dade state trial court recently issued a decision that will serve as precedent and another avenue for creditors to argue for a “freeze” order against debtors before trial and judgment – enforcement of orders obtained before foreign courts in proceedings occurring in other countries. This path can become a powerful weapon for creditors in future cases.
In February 2021, in Gorsoan Ltd. v. Bullock, the Eleventh Judicial Circuit of Florida (for Miami-Dade County), Judge Michael Hanzman presiding and writing the opinion, wherein the Court enforced an ex parte worldwide asset freeze (known as “Mareva” or “freezing” injunction – which had been issued by a Cyprus court. The matter is significant, especially as it pertains to Russian and former CIS republics-related cases, where traditionally international debtor-creditor cases have found their way into Cyprus courts – where many companies had been formed.
In this case, the Court was presented and analyzed two issues. First, whether Florida courts give full faith and credit to a foreign court’s non-final orders. Second, whether recognizing a foreign freeze order would offend “some paramount public policy.” The answer to the first question is yes. The answer to the second question is no.
In enforcing the Cyprus freeze order, the Court rested on principles of “comity of nations,” and cited the following principle: “[A]ny foreign decree should be recognized as a valid judgment, and thus be entitled to comity, where the parties have been given notice and the opportunity to be heard, where the foreign court had original jurisdiction and where the foreign decree does not offend the public policy of the State of Florida.” (citation omitted). The Court also noted the following standard under the Restatement (Second) of Conflict of Laws: “[A] decree rendered in a foreign nation which orders or enjoins the doing of an act will be enforced in this country provided that such enforcement is necessary to effectuate the decree and will not impose an undue burden upon the American court and provided further that in the view of the American court the decree is consistent with fundamental principles of justice and of good morals.”
When analyzing whether public policy was somehow violated, the Court reasoned that “none of the cases cited by the parties that recognized foreign injunctions sought to supplant the legal standards of the foreign tribunal with Florida’s own injunction standard.” In other words, the Court did not feel compelled to engage in a classic analysis of the injunction standard under U.S. law, i.e. whether there is a “strong likelihood of the merits,” and “irreparable harm,” among other factors. Instead, the Court accepted that the Cyprus court had done its own analysis in this regard.
In addition, the Court explained that Florida’s irreparable harm standard, while an element that must be satisfied to secure common law injunctive relief in Florida, is not enshrined in the state’s overall public policy. For example, Florida Statute § 78.068(2), applicable to replevin actions, expressly provides that a “prejudgment writ of replevin may issue if the court finds . . . that the defendant is engaging in, or is about to engage in, conduct that may place the claimed property in danger of” dissipation, but the statute makes no mention of irreparable harm.
There is little question that this case will have a significant impact on international debtor-creditor cases. It is also indicative of the ongoing “internalization” of the law occurring in U.S. courts. Matters of private international law and the impact and interplay between concurrent proceedings occurring worldwide, in different jurisdictions is constantly being analyzed by U.S. courts. The U.S. Supreme Court is currently analyzing whether discovery may be obtained in U.S. courts in aid of proceedings occurring in foreign arbitrations. The logical question that flows, especially, if the U.S. court answers this question in the affirmative is whether an arbitrator’s “freeze order” shall also be enforceable in a court of law in the U.S. courts.