Estate of Ke v. Stephany

105 F.4th 648

ESTATE OF KE Zhengguang, Plaintiff/Petitioner - Appellee, v. YU Naifen Stephany, a/k/a Stephany Yu, a/k/a Stephany Naifen Yu,a/k/a Stephany N. Dombrowski, Defendant/Respondent - Appellant.

No. 23-1144

United States Court of Appeals, Fourth Circuit

Argued: March 19, 2024

Decided: June 27, 2024

Appeal from the United States District Court for the District of Maryland, at Greenbelt. Paula Xinis, U.S. District Judge (8:18-cv-03546-PX; 8:20-cv-02260-PX)

ARGUED: Charles Michael, STEPTOE LLP, New York, New York, for Appellant. Amiad Moshe Kushner, SEIDEN LAW LLP, New York, New York, for Appellee. ON BRIEF: Jennifer Blecher, Xintong Zhang, SEIDEN LAW LLP, New York, New York, for Appellee.

Before NIEMEYER, GREGORY, and AGEE, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Judge Gregory and Judge Agee joined.

NIEMEYER, Circuit Judge:

The Estate of Ke Zhengguang commenced this action against Stephany Yu to enforce an arbitral award entered in its favor against Yu on February 28, 2018, by an arbitration panel in Hong Kong. The award was entered following a lengthy arbitration proceeding commenced in Hong Kong to resolve business disputes among several parties involving real property in China. As part of its award, the Hong Kong panel ordered Yu and her two sisters, jointly and severally, to pay the Estate and Xu Hongbiao 10,346,211 Renminbi ("RMB," China's official currency), which was roughly equivalent to $1.63 million, for the losses they sustained. The panel subsequently issued supplemental awards adding attorneys fees, arbitration fees, and interest.

After Yu had paid Xu his one-half share of the damages awarded, the Estate brought this action against Yu, who is a U.S. citizen residing in Maryland, to collect the other half.

The district court confirmed the award under the New York Convention, a treaty to which the United States and Hong Kong are signatories, which provides for the recognition and enforcement of foreign arbitral awards, and it entered judgment in favor of the Estate against Yu in a total amount of $3.6 million, which included attorneys fees, costs, and pre-award interest. The damages component of the award in U.S. dollars was based on the currency exchange rate as of February 28, 2018 — the date of the original arbitration award.

On appeal, Yu contends that the district court erred in failing to grant her motion to dismiss the enforcement proceeding, arguing (1) that the district court in Maryland was a forum non conveniens; (2) that the Estate failed to join necessary, indeed indispensable, parties to the arbitration proceeding, as required by Federal Rule of Civil Procedure 19; and (3) that the enforcement of the award would violate Chinese currency control laws and thereby violate the United States' policy favoring international comity, which is a specified defense in the New York Convention. She also contends that the district court should have entered judgment in RMB, as provided in the arbitral award, not in U.S. dollars.

For the reasons that follow, we find none of Yu's arguments regarding the damages she owes persuasive and accordingly affirm.

I

In the early 2000s, Stephany Yu and her two sisters entered into a business partnership with Xu Hongbiao and Ke Zhengguang with the purpose of buying and developing real estate in China. Together, the five partners formed Oasis Investment Group Limited, a company incorporated in the British Virgin Islands. Xu and Ke held non-controlling interests in Oasis, each holding 16.6% of its shares, while Yu and her two sisters collectively held a controlling interest, holding respectively 49%, 16.6%, and 1% of its shares.

In 2010, the five Oasis partners decided to restructure their arrangement, executing an agreement detailing how they would divide their interests with payments of cash, transfers of stock, and transfers of property. The agreement included an arbitration clause, providing that any disputes arising out of the agreement would be resolved by arbitration in the Hong Kong International Arbitration Center under Hong Kong law.

Over the next few years, despite the partners' efforts, the partners were unable to agree on how to implement their 2010 agreement. Accordingly, in February 2013, Xu and Ke filed a notice of arbitration against Oasis, Yu, and her two sisters in Hong Kong. During the course of the arbitration proceedings, Ke died, and the arbitration panel substituted as a claimant the Estate of Ke (administered by Ke's wife and daughter). Years later, on February 28, 2018, the arbitration panel issued a final arbitral award, ordering the transfers of properties, the transfers of stock, and the payment of money. Specifically, the award contained nine orders. Orders 1 and 2 provided for transfers of real property; Orders 3 and 4 provided for the settlement of intra-company debts and compliance with audit requirements; Orders 5, 6, and 7 provided for transfers of stock; Order 8 required the four arbitral respondents to make specified payments to Xu and the Estate of Ke; and Order 9 ordered Yu and her two sisters, jointly and severally, to pay Xu and the Estate RMB 10,346,211, "as compensation for their losses," one-half to each.

Thereafter, Yu paid Xu his portion of the damages awarded in Order 9 by having an Oasis subsidiary wire money to an account that Xu held in a bank in China. While Yu was also willing to pay the Estate its share with a check drawn on a bank in China, the Estate refused payment in that form because the money would become subject to Chinese currency laws if the Estate attempted to move it to Hong Kong or elsewhere. It took the position that Yu must provide the Estate payment that could be deposited into its Hong Kong bank account, where the arbitration award was issued.

To enforce the award against Yu, the Estate commenced this action under the New York Convention in the federal district court in Maryland, where Yu resides and has resided since 2016. The Estate requested judgment confirming Order 9 of the arbitration award and enforcing it in U.S. dollars equivalent to RMB 5,173,105.50, representing one-half of the payment due under Order 9 of the arbitration award, plus interest and attorneys fees.

Shortly after the Estate filed this action, the Hong Kong arbitration panel issued a clarification making a procedural change to Order 2 and a name change to Order 7. The Estate thereafter filed an amended petition in the district court seeking not only the payment required by Order 9, but also confirmation of the obligations delineated in Orders 1 through 8. And with respect to Order 9, the Estate included a request for both pre-judgment and post-judgment interest. In its amended petition, the Estate alleged that it was "unable to negotiate any RMB-denominated payments that are drawn on a [People's Republic of China] bank," because such a bank could not, under China's currency laws, freely send money to the Estate's bank in Hong Kong. It alleged, however, that it was willing to accept payment in RMB by check so long as the check could be deposited in a bank in Hong Kong. Yu refused to provide payment in that form.

Yu filed a motion to dismiss the petition, as amended, contending (1) that the district court was a forum non conveniens; (2) that the Estate failed to join necessary parties, as required by Federal Rule of Civil Procedure 19; and (3) that the district court should decline to enforce the award under the Convention's public policy exception, as Yu's offshore payment of the judgment would run contrary to China's currency control laws and therefore violate the United States' public policy of international comity. She also urged that, if a money judgment requiring payment for Order 9 were to be entered, the court should enter it in RMB rather than U.S. dollars, with instructions that the payment be made in China.

By a memorandum opinion dated February 24, 2020, the district court denied Yu's motion to dismiss on all grounds and granted the Estate's amended petition for recognition and enforcement, providing that the entry of judgment be in U.S. dollars. The court noted that the New York Convention "lists seven exclusive defenses to enforcement, and neither forum non conveniens nor failure to join necessary parties under Rule 19 is one of them." And denying Yu's public policy defense, the court explained:

Stephany Yu simply asserts, without citing any authority, that she might be placed at legal risk for potentially violating China's currency control laws if the Court were to require her to pay the Final Award from China to a bank account outside of China. This Court is not being asked to enforce a judgment in China, but rather, in the United States, so any decision in this case would not undermine the interests of China in enforcing its own currency control laws.

Finally, the court determined that its judgment would be in U.S. dollars, as requested by the Estate, recognizing that "[r]ecent cases have endorsed judgment in a foreign currency if the petitioner requests payment in that currency." (Quoting Leidos, Inc. v. Hellenic Republic, 881 F.3d 213, 218 (D.C. Cir. 2018)).

The only order of the Hong Kong award that the district court addressed in its memorandum opinion was Order 9, an order for which Yu — the only arbitral respondent who is a party in this enforcement action — was jointly and severally liable. The Estate did not in its briefing pursue any specific performance orders regarding the obligations of the other parties to the arbitration, and the district court did not address such relief against Yu or any other party to the arbitration.

The court directed the parties to submit a proposed judgment implementing the rulings of its memorandum opinion.

Before the district court entered final judgment, however, the arbitration panel in Hong Kong issued two supplemental awards addressing fees, costs, and interest. In response, the Estate filed a second action in the...