Recent multi-billion-dollar damage awards issued by foreign courts against large American companies have focused attention on the once-obscure, patchwork system of enforcing foreign-country judgments in the United States. That system’s structural problems are even more serious than its critics have charged. However, the leading proposals for reform overlook the positive potential embedded in its design.

In the United States, no treaty or federal law controls the domestication of foreign judgments; the process is instead governed by state law. Although they are often conflated in practice, the procedure consists of two formally and conceptually distinct stages: foreign judgments must first be recognized and then enforced. Standards on recognition differ widely from state to state, but under current law once plaintiffs have secured a recognition judgment all American courts must enforce it irrespective of their own recognition laws. This rigid system, which exceeds the constitutional requirement of full faith and credit, enables plaintiffs to effectively launder a foreign judgment by enforcing it in a state that would have rejected it in the first place.

This brand of forum shopping, which I call “judgment arbitrage,” creates a fundamental structural problem that has thus far escaped scholarly attention: it undermines the power of individual American states to determine whether foreign-country judgments are enforced in their territory and against their citizens. It also creates a powerful, if implied, conflict of recognition laws among sister U.S. states that precedes and often determines the outcome of what scholars currently consider the primary conflict, between American and foreign law. Finally, this system impedes the development of state law and weakens practical constraints on the application of foreign nations’ laws in the United States.

This Article contends that statutorily liberating states from the current conception of full faith and credit in domestication would sharpen jurisdictional competition, encouraging the development of better law (however defined) and, eventually, greater uniformity in an area where scholars agree uniformity is desirable. It begins by constructing a novel framework for conceptualizing these problems, and addresses them by proposing a federal statute that would allow states to capture the benefits—and require them to internalize the costs—of their own recognition laws. Rather than scrap the current state-law system in favor of a single federal rule, as the American Law Institute and some leading scholars call for, or institute a national regime of centrally-designed uniform state laws, as the National Conference of Commissioners on Uniform State Laws and other commentators urge, the statute proposed in this Article would provide incentives for competition among states for recognition law. The proposal may also suggest ways to manage other sister-state conflicts of law in an age when horizontal conflicts are proliferating.