Time to Revisit State Law and Recognition of Foreign Judgments?

In a saga of twist and turns, a nightmare for any law student trying to map out lower court proceedings, or a crime novel, it is interesting to read a case from Texas that is now being considered for hearing before the U.S. Supreme Court.

It raises the issue of recognition of foreign judgments, a matter of state law. Coming from Texas, the case has taken a particularly unsettling turn, but not an unexpected one when concerning the oil industry. More than just unsettling for conduct of international business relations, but more so regarding the integrity of the state judicial process.

Maghreb Petroleum and Mideast Fund (19-789) is now before the U.S. Supreme Court, and the court is considering accepting it. Simply put, the plaintiffs were American investors in developing oil reserves in Morocco. As is not unusual, one investor (the plaintiff) claimed fraud involving the promoter (a Texan billionaire). This went to trial in Morocco, and the  plaintiffs secured a default judgment. They then brought an action in a federal court in Texas to enforce that judgment.

Lower federal courts recognized the foreign judgment. However, in the process, the state legislature in Texas changed the law. It allowed foreign judgments not to be recognized if there were irregularities in the particular proceeding. (The prior law allowed for assessment of only the foreign legal system itself.) On rehearing, the lower courts applied this new law, retroactively.

So what is the bottom line for me?

Failure to recognize a foreign judgment is not unusual. It is a matter of state law. What is somewhat unusual is the state legislature attempts to reverse a lower court’s judgment by changing applicable law, retroactively.  And for the lower courts to reverse themselves.

Again, it is not necessarily unusual for laws to be applied retroactively. But in this context, it certainly doesn’t inspire confidence in the integrity of the Texas courts.  Nor is it helpful to create predictability in international commerce, which is in the interest of the United States. Predictability encourages more commerce and investment.

This case involves a particular corner of federal-state relations. States are playing a bigger and bigger role in international commerce today. The case illustrates one aspect of that larger truth. Might it be time to federalize the rule governing recognition of foreign judgments impacting global commerce?


About Stuart Malawer

Distinguished Service Professor of Law & International Trade at George Mason University (Schar School of Public Policy).
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