Over at Letters Blogatory, friend of the blog Ted Folkman has published his take on Alberta Securities Commission v. Ryckman, the recent Delaware decision that (as I wrote last week) provides a good example of judgment arbitrage. Thank you again, Ted, for bringing the case to my attention.
Judgment arbitrage is a term I coined for a particular strategy for enforcing unenforceable judgments. It is a method of forum-shopping that allows creditors to exploit a quirk in American law that allows them to enforce foreign-country judgments in a forum where they would not otherwise be able to. There’s more discussion of the strategy in my Ryckman post, this symposium piece, and the original article where I lay out the theory.
In Ryckman, the creditor sought to collect Delaware assets in satisfaction of a Canadian judgment. The twist here was that the creditor first got its Canadian judgment recognized in Arizona, hopped a plane east, and then sought to use what was at that point technically an Arizona judgment to collect assets in Delaware. It was undisputed that the underlying Canadian judgment—a fine imposed by a Canadian agency—was not enforceable in Delaware, yet the Delaware court ordered enforcement anyway, because it was enforcing the Arizona judgment. It did so in the name of Full Faith and Credit, falling back on an articulation of that principle that I believe to be an incomplete. (There is a growing consensus, which I discuss at pp. 487-91 of the article, that FF&C does not compel states to grant full credit categorically to sister-state judgments.)
Ryckman is a good example of arbitrage. The creditor was able, with minimal friction, to profit from a major difference between Arizona and Delaware law governing the recognition of foreign judgments. Merriam-Webster defines arbitrage as “the practice of buying something (such as foreign money, gold, etc.) in one place and selling it almost immediately in another place where it is worth more.” The Canadian judgment wasn’t simply more valuable in Delaware for having transited Arizona first; it would have been completely worthless under Delaware law otherwise. The cost of unlocking additional assets for the creditor via the Arizona judgment was a little legal complexity and paperwork. It’s the essence of arbitrage.
Ted’s post disputes that the case is really arbitrage because the debtor, not the creditor, was the one to choose Arizona as the recognition forum—after all, he moved his domicile there. I find this point logically appealing, but my read of the law is that many courts wouldn’t place much stock in it…