Telcordia Tech Inc v. Telkom SA Ltd ( 2006 )

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit
8-14-2006
Telcordia Tech Inc v. Telkom SA Ltd
Precedential or Non-Precedential: Precedential
Docket No. 05-1653
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-1653
TELCORDIA TECH INC, in the matter of the
arbitration of certain controversies between,
Appellant
v.
TELKOM SA LTD
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 04-cv-02463)
District Judge: Hon. John C. Lifland
Argued on January 13, 2006
Before: SCIRICA*, FUENTES and ROTH**, Circuit Judges.
(Opinion filed August 14, 2006)
*This case was argued before the panel of Judges
Fuentes, Roth and Rosenn. As Judge Rosenn passed away on
February 7, 2006, Judge Scirica has been added to the coram.
**Judge Roth assumed senior status on May 31, 2006.
Allen B. Green, Esquire (Argued)
McKenna, Long & Aldridge
1900 K Street, N.W.
Washington, DC 20006
Charles M. Lizza, Esquire
Jay G. Safer, Esquire
LeBoeuf, Lamb, Greene & MacRae
One Riverfront Plaza
Newark, NJ 07102
Jay G. Safer, Esquire
LeBoeuf, Lamb, Greene & MacRae
125 West 55th Street
New York, NY 10019
Counsel for Appellants
Eugene D. Gulland, Esquire (Argued)
Covington & Burling
1201 Pennsylvania Avenue, N.W.
Washington, DC 20004
Counsel for Appellees
OPINION OF THE COURT
ROTH, Circuit Judge:
We review here two orders by the District Court of New
Jersey. In the first, the District Court granted Telkom SA Ltd.’s
motion to dismiss Telcordia Technologies Inc.’s petition to
confirm a partial arbitral award. Specifically, the District Court
dismissed Telcordia’s petition with prejudice because of issue
preclusion or estoppel resulting from a previous decision by the
D.C. Circuit Court of Appeals dismissing a similar petition by
2
Telcordia without prejudice. In the alternative, but still in the
first order, the District Court dismissed the petition without
prejudice because the court chose to exercise “its discretion not
to enforce the award at this time.”
In the second order, the District Court dismissed the
petition for lack of personal jurisdiction over Telkom and denied
Telcordia’s request for jurisdictional discovery. For the reasons
that follow, we find that the District Court does have personal
jurisdiction over Telkom. Furthermore, we find that
considerations of comity and the proper interpretation of the
New York Convention dictate that the petition be dismissed
without prejudice.
I. Background
Telcordia, with a principal place of business in
Piscataway, New Jersey, entered into a multimillion dollar
contract with Telkom, a South African telecommunications
company that was formerly the state-owned telephone
monopoly.1 Pursuant to the agreement, Telkom was to pay
Telcordia more than $249 million for customized
telecommunications software. Unfortunately, the performance
of the contract was racked with disputes, mainly with respect to
whether the software complied with certain contractual
specifications.2
Pursuant to the parties’ contract, the two companies
entered into binding arbitration in South Africa according to the
rules of the International Chamber of Commerce (ICC). The
arbitrator was Anthony Boswood, QC, of Fountain Court
1
Telkom was privatized in 2004 and currently operates as an
ordinary commercial company under South African law with the
government as a shareholder.
2
For reasons that will become clear, the substance of the
underlying contractual dispute is not particularly important for
purposes of this appeal. As such, the underlying dispute will be
referred to only in passing.
3
Temple, London, England. During the proceedings, Telkom
sought intervention from the South African High Court to
correct alleged errors in the arbitration.3 Specifically, Telkom
concluded that the arbitrator was viewing issues from the
perspective of English law, instead of South African law, as
required by the parties’ agreement. Before the High Court could
act, on September 27, 2002, the arbitrator held that Telkom was
liable to Telcordia for breach of contract. On September 30,
2002, the ICC’s International Court of Arbitration formally
issued its final award in favor of Telcordia and directed the
parties to give it effect.
Shortly thereafter, Telcordia petitioned the United States
District Court for the District of Columbia to confirm the
arbitral award pursuant to the New York Convention.4
3
The South African High Court is a trial court.
4
At the time Telcordia brought the petition, the Government
of South Africa was the majority owner of Telkom.
Consequently, venue is permitted in, but not limited to, the
District of Columbia pursuant to the Foreign Sovereign
Immunities Act, 28 U.S.C. § 1391(f), which states that:
A civil action against a foreign state as defined in section
1603(a) of this title [28 USCS § 1603(a)] may be
brought--
(1) in any judicial district in which a substantial part of
the events or omissions giving rise to the claim occurred,
or a substantial part of property that is the subject of the
action is situated;
(2) in any judicial district in which the vessel or cargo of
a foreign state is situated, if the claim is asserted under
section 1605(b) of this title [28 USCS § 1605(b)];
(3) in any judicial district in which the agency or
instrumentality is licensed to do business or is doing
business, if the action is brought against an agency or
instrumentality of a foreign state as defined in section
1603(b) of this title [28 USCS § 1603(b)]; or
(4) in the United States District Court for the District of
4
Contemporaneously, Telkom had filed a separate action in the
South African High Court to have the award set aside or
annulled pursuant to Section 33 of the South African Arbitration
Act. Article III of the New York Convention provides that each
state party “shall recognize arbitral awards as binding and
enforce them in accordance with the rules of procedure of the
territory where the award is relied upon.” The setting aside or
annulment of the arbitral award by the South African Court
would be grounds for other courts to refuse recognition and
enforcement of the arbitral award pursuant to Article V of the
New York Convention. Specifically, Article V(1)(e) provides
that:
1. Recognition and enforcement of the award may be
refused, at the request of the party against whom it is
invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is
sought, proof that:
(e) The award has not yet become binding on the parties,
or has been set aside or
suspended by a competent authority of the country in
which, or under the law of which, that award was made.
In July 2003, the D.C. District Court dismissed the case
without prejudice on the grounds that it lacked personal
jurisdiction over Telkom and, alternatively, that the case could
not proceed under the doctrine of forum non conveniens.
Telcordia appealed to the U.S. Court of Appeals for the D.C.
Circuit. That court affirmed on the alternative ground that under
Article VI of the New York Convention the District Court
should have adjourned its proceeding and awaited the outcome
Columbia if the action is brought against a foreign state
or political subdivision thereof.
(brackets in original)
5
of the pending action in South Africa.5 Article VI provides a
mechanism by which courts asked to enforce an arbitral award
can adjourn to await the type of proceeding in the situs
jurisdiction referenced in Article (V)(1)(e). Accordingly, the
D.C. Circuit dismissed the petition without prejudice.
On November 27, 2003, and while the case was on
appeal in the D.C. Circuit, the South African High Court issued
a decision setting aside the award and ordering a new
arbitration. On November 29, 2004, the Supreme Court of
Appeal of South Africa agreed to hear Telcordia’s appeal from
the trial court’s annulment of the award. This appeal is
currently pending.
Undeterred, Telcordia brought a petition to enforce the
arbitral award in the District of New Jersey. The District Court
dismissed the petition with prejudice based on estoppel vis-à-vis
the D.C. Circuit decision and, alternatively and cryptically,
dismissed without prejudice pursuant to the New York
Convention. In a second order, the District Court dismissed for
lack of personal jurisdiction over Telkom. Telcordia timely
appealed both orders to this Court.
II. Subject Matter Jurisdiction and Standard of Review
The District Court had subject matter jurisdiction
pursuant to 28 U.S.C. § 1331 because Telcordia sought
confirmation of an arbitral award under the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the
“New York Convention”), 9 U.S.C. §§ 203, et seq. This Court
has appellate jurisdiction over the two final orders under 28
U.S.C. § 1291.
We review a district court's decision that it possesses or
lacks personal jurisdiction de novo. Pinker v. Roche Holdings
5
Both the United States and South Africa are signatories to
the United Nations Convention on the Recognition and
Enforcement of Foreign Arbitral Awards, which is also know as
the New York Convention.
6
Ltd., 292 F.3d 361, 368 (3d Cir. 2002). In reviewing a motion
to dismiss for lack of personal jurisdiction, this Court “must
accept all of the plaintiff's allegations as true and construe
disputed facts in favor of the plaintiff.” Id. (quoting Carteret
Sav. Bank, FA v. Shushan, 954 F.2d 141, 142 n.1 (3d Cir.
1992)). Factual findings made by a district court in determining
personal jurisdiction, however, are reviewed for clear error.
Penzoil Prod. Co. v. Colelli & Assocs., Inc., 149 F.3d 197, 200
(3d Cir. 1998). Review of a district court’s dismissal on
grounds of issue preclusion is plenary. Del. River Port Auth. v.
Fraternal Order of Police, 290 F.3d 567, 572 n.6 (3d Cir. 2002)
(marshaling authority).
The standard of review of a district court’s decision to
defer to foreign annulment proceedings under Article VI of the
New York Convention is one of first impression for this Circuit.
We agree with the Second Circuit that “in light of the permissive
language of Article VI of the Convention and a district court's
general discretion in managing its own caseload and suspense
docket, . . . the proper standard for reviewing a district court's
decision whether to adjourn is for abuse of discretion.”
Europcar Italia S.P.A. v. Maiellano Tours, Inc., 156 F.3d 310,
316-17 (2d Cir. 1998) (internal citations omitted).
III. Discussion
A. Personal Jurisdiction
The District Court of New Jersey may assert personal
jurisdiction over Telkom to the extent provided under New
Jersey law. See Carteret, 954 F.2d at 144 (quoting Provident
Nat'l Bank v. California Fed. Sav. & Loan Ass'n, 819 F.2d 434,
436 (3d Cir. 1987)). New Jersey’s long-arm statute provides for
jurisdiction up to the limits of the protection afforded to
nonresidents by the Due Process Clause of the Fourteenth
Amendment. Charles Gendler & Co., Inc. v. Telecom Equip.
Corp., 508 A.2d 1127, 1131 (N.J. 1986). Pursuant to the Due
Process Clause of the Fourteenth Amendment, in personam
jurisdiction may be asserted over a nonresident so long as the
defendant has “certain minimum contacts with [the forum] such
that the maintenance of the suit does not offend traditional
7
notions of fair play and substantial justice.” Int’l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945) (quotation omitted).
The concept of minimum contacts varies according to the
nature of the interactions and type of jurisdiction asserted.
Specific jurisdiction6 is established when a nonresident
defendant has “purposefully directed” his activities at a resident
of the forum and the injury arises from, or is related to, those
activities. General Elec. Comp. v. Deutz A.G., 270 F.3d 144,
150 (3d Cir. 2001). In determining jurisdiction for a breach of
contract, the district court must consider the totality of the
circumstances. Remick v. Manfredy, 238 F.3d 248, 256 (3d Cir.
2001).
Traveling to the forum to consult with the other party can
constitute purposeful availment, regardless of who solicited the
contact. Carteret, 954 F.2d at 150. Moreover, physical
presence in the forum is no longer determinative in light of
modern commercial business arrangements; rather, mail and
wire communications can constitute purposeful contacts when
sent into the forum. See Burger King Corp. v. Rudzewicz, 471
U.S. 462, 476 (1985). Also, where a long-term relationship has
been established, actual territorial presence becomes less
determinative. General Elec., 270 F.3d at 151. Finally, “[i]n
contract cases, courts should inquire whether the defendant's
contacts with the forum were instrumental in either the
formation of the contract or its breach.” Id. at 150 (emphasis
added).
Telcordia alleges that Telkom has the following contacts
with New Jersey:
(1) Telkom entered into a long-term, quarter-
billion dollar contract with a New Jersey
company;
6
Since we find that the District Court can exercise specific
jurisdiction over Telkom relating to the contract at issue, we
need not reach the issue of general jurisdiction.
8
(2) significant activities related to the contract
were performed in New Jersey;
(3) Telkom visited New Jersey on numerous
occasions in connection with the contract;
(4) Telkom communicated with Telcordia’s New
Jersey office extensively;
(5) Telkom paid Telcordia via a New Jersey bank
(6) Telkom breached the contract by failing to
make payments to said New Jersey bank.
The District Court rejected these proffered contacts on
the grounds that they constituted “isolated visits to New Jersey
[that] were merely incidental to the performance of the contract
and, in any event, were not occasioned by Telkom’s purposeful
availment of the privileges of conducting activities in the United
States.” Also, the District Court relied heavily on the findings
of the D.C. District Court, although it did recognize that the
findings were not preclusive in light of the D.C. Circuit Court of
Appeals’s limited holding.
In this regard, the District Court was in error.7 The D.C.
District Court’s analysis, which applied D.C. Circuit law, is not
determinative in light of Third Circuit case law interpreting the
Due Process Clause. Moreover, Telcordia offered additional
facts in its current petition linking Telkom to New Jersey that
were not analyzed by the D.C. District Court. Finally, the D.C.
District Court’s analysis did not examine the specific contacts
between Telkom and New Jersey viewed through the lens of
Third Circuit law; rather, the Court focused broadly on the
contacts between Telkom and the United States viewed through
the lens of D.C. Circuit law. As such, the persuasive influence
7
The District Court’s determinations did not contain factual
findings; rather, the determination focused on the legal import
of undisputed events and facts. As such, they are reviewed de
novo. Pinker, 292 F.3d at 368.
9
of the D. C. District Court’s analysis is limited.
In regard to Telkom’s contacts with New Jersey, it is
undisputed that Telkom and Telcordia entered into a relationship
to exchange customized merchandise. Put another way, their
contract did not constitute the isolated interaction of a supplier
putting an item into the stream of commerce to be fished out by
a consumer. As such, Telkom’s lack of a physical presence in
New Jersey becomes less determinative. General Elec., 270
F.3d at 151.
It is also undisputed that Telkom representatives traveled
into New Jersey pursuant to the business relationship. For
example, representatives visited New Jersey to participate in
testing-related matters once problems arose in the contract.
Such consultations, when they constitute a significant part of the
business relationship, represent purposeful availment. See
Carteret, 954 F.2d at 150. Given the specific nature of the
requested goods, the close relationship and resulting
consultations were a significant part of the business
arrangement. Moreover, the breach of contract, i.e., the failure
to pay for contractually compliant software, occurred when the
payment was not placed in a New Jersey bank pursuant to the
parties’ course of dealings. Also, the fact that the contract called
for the establishment of an office in South Africa is not
determinative. Strick Corp. v. A.J.F. Warehouse Distribs., Inc.,
532 F. Supp. 951, 960 (E.D. Pa. 1982) (noting that “[i]t is not
necessary that a suit be brought where the defendant has the
most contacts or even in the most logical forum.”).
Finally, the fact that the proceeding was for the
enforcement of an arbitral award, rather than adjudication on the
merits, rightly colors our analysis. Although the New York
Convention does not diminish the Due Process constraints in
asserting jurisdiction over a nonresident alien, the desire to have
portability of arbitral awards prevalent in the Convention
influences the answer as to whether Telkom “reasonably
anticipate(d) being haled into” a New Jersey court. World-wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).
Moreover, the fact that the arbitration at issue was between a
New Jersey corporation and the former government-owned state
10
telecommunications monopoly illustrates New Jersey’s interest
in adjudicating this dispute. Id. at 292 (noting that “[i]mplicit in
this emphasis on reasonableness [of assuming jurisdiction] is the
understanding that the burden on the defendant, while always a
primary concern, will in an appropriate case be considered in
light of other relevant factors, including the forum State's
interest in adjudicating the dispute”). Thus, the totality of the
circumstances points toward sufficient contacts by Telkom with
New Jersey. As such, the District Court has jurisdiction to
enforce the arbitral award.
B. Issue Preclusion
In its order dated January 24, 2005, the District Court
dismissed with prejudice Telcordia’s petition based on the D.C.
Circuit’s decision. Specifically, the District Court held that:
Telcordia’s Petition is dismissed with prejudice because
principles of issue preclusion or estoppel do not permit
it to relitigate the judgment of the U.S. Court of Appeals
for the District of Columbia Circuit in Telcordia
Technologies, Inc. v. Telkom SA, Limited (No. 03-7099,
issued on April 9, 2004), which upheld the dismissal of
Telcordia’s petition to confirm the same arbitration
award pursuant to Article VI of the Convention on the
Recognition and Enforcement of Foreign Arbitral
Awards (see 9 U.S.C. §§ 201, et seq.) (the
“Convention”). In so ruling, this Court does not reach
the merits of the parties’ underlying dispute.
The D.C. Circuit’s decision, however, was that the
proceeding should be adjourned pursuant to Article VI of the
New York Convention. More concretely, the D.C. Circuit
affirmed the District Court’s dismissal of the petition without
prejudice.
For Telkom to be able to piggyback a dismissal without
prejudice into a dismissal with prejudice is anathema to the
“wait-and-see” raison d’être of Article VI. Although we agree
with Telkom that the decision is still pending in South Africa,
given the fact that the case is currently working its way through
11
South Africa’s appeals process, the fact that Telcordia
prematurely brought a case for enforcement in New Jersey
should not predetermine its ability to ever bring a case in New
Jersey, as would be the case if the dismissal was on the merits.8
Put another way, this case would be very different if, for
example, the D.C. Circuit had ruled pursuant to Article V and
refused to enforce the award. Such a decision would likely
constitute a decision on the merits entitled to preclusive import.
That is not the case here. The D.C. Circuit opinion relied on
Article VI rather than Article V.
Telkom’s allegations of forum-shopping by Telcordia do
not change the analysis. First, the D.C. Circuit did not mention
a desire to maintain any type of control over the proceeding, as
would be the case if it decided to "adjourn" by issuing a stay -
a possibility under Article VI that was recognized by the D.C.
Circuit yet not exercised. Telcordia Technologies, Inc. v.
Telkom SA, Limited (No. 03-7099, issued on April 9, 2004)
(noting that “we construe ‘adjourn’ to mean stay or dismiss
without prejudice, we affirm the district court on the ground that
the court’s dismissal was proper under Article VI”). As such,
the filing of the petition in New Jersey does not take the case out
of the control of another court and, therefore, does not constitute
a type of forum-shopping that would justify remediation by this
8
This Court’s decision in Pastewka v. Texaco Inc., 565 F.2d
851 (3d Cir. 1977), which Telkom argues is controlling, is
inapposite to the instant case. In Pastewka, the District Court
for the Southern District of New York had dismissed plaintiffs’
suits on forum non conveniens grounds in favor of adjudication
in England. When the plaintiffs tried to bring the same suits in
Delaware and were unable to point to any “objective fact
establishing that, unlike New York, Delaware would be a more
convenient forum than England” this Court dismissed the
complaints. Unlike here, the plaintiffs in Pastewka were
precluded from bringing their suit in New York. Here, it is
undisputed that Telcordia could rebring the petition in the D.C.
District Court once a set of events have passed.
12
Court.
Second, to prohibit Telcordia from bringing a claim
based solely on allegations of forum-shopping ignores the
maxim that courts generally defer to a plaintiff’s choice of
forum. Jumara v. State Farm Ins. Co., 55 F.3d 873, 880 (3d Cir.
1995). As such, the District Court’s dismissal with prejudice is
reversed.
C. Article VI of the New York Convention
As previously mentioned, the District Court dismissed
the petition without prejudice, as an alternative holding, because
the Court chose to exercise “its discretion not to enforce the
award at this time.” In reaching this decision, the District Court
found that;
The High Court issued a decision setting aside the partial
award, and Telcordia has persuaded the Supreme Court
of appeals of South Africa to review that decision.
Literally under article 6 the decision has been set aside,
the decision of the arbitrator has been set aside by the
High Court of South Africa which is, I find, a competent
authority of the country in which or under the law of
which that award was made. I don’t think there is any
dispute about that.
Until the Supreme Court of Appeal rules, the decision of
the arbitrator remains set aside, and therefore, both under
article 6 which I have just referred to, and article 5(1)(e)
the Court would have the authority to refuse to recognize
or enforce an arbitral award. Or article 5 and article 6
work together in this respect, it seems to me to
commonly, under article 6, give the Court discretion to
refuse to enforce at this time, but under article 5 suggest
that at this time the grounds for refusing to recognize or
enforce an arbitral award exist which in turn suggests
that at the very least, discretion should be exercised not
to enforce it at this time.
We feel that the District Court need not have reached the
13
contours of Article V or the interplay between Articles V and
VI. Specifically, the District Court need not have reached its
ability to refuse or delay the enforcement of an annulled arbitral
award under Article V. As such, we interpret the District
Court’s order as one for adjournment pursuant to Article VI of
the New York Convention. Article VI states that;
If an application for the setting aside or suspension of the
award has been made to a competent authority referred
to in article V (1) (e), the authority before which the
award is sought to be relied upon may, if it considers it
proper, adjourn the decision on the enforcement of the
award and may also, on the application of the party
claiming enforcement of the award, order the other party
to give suitable security.
As was the case when Telcordia sought enforcement in
the D.C. Circuit, the annulment proceeding is still pending in
South Africa – the South African Supreme Court has agreed to
hear the case. Although the arbitral award may have been
“literally” set aside by the High Court, the fact that an appeal is
currently outstanding before the South African Supreme Court
means that functionally an application for setting aside the
award is still pending. As such, the District Court’s invocation
of Article V(1)(e) is premature.
We note further that the District Court’s ultimate
decision, dismissal without prejudice, is consistent with this
Court’s notions of comity in the international arena, Stonington
Partners, Inc. v. Lernout & Hauspie Speech Prod. N.V., 310
F.3d 118, 126 (3d Cir. 2002), and is the best way for this Court
to give full faith and credit to the decision of the D.C. Circuit
Court of Appeals. Consequently, we see no reason to determine
the complex interplay between Articles VI and V nor, for that
matter, do we choose to disturb the discretionary determination
by the District Court.9
9
Telcordia argues that the New York Convention allows a
court to confirm an arbitral award even if the award has been set
aside in the situs country. See, e.g., Chromalloy Aeroservices v.
14
IV. Conclusion
For the reasons discussed above, the District Court has
personal jurisdiction over Telkom. Accordingly, the District
Court’s order of February 15, 2005, is reversed. As to the
judgment entered January 24, 2005, the District Court’s decision
to dismiss Telcordia’s petition without prejudice is affirmed, the
decision to dismiss the petition with prejudice, however, is
reversed. In the interest of clarity, we note that Telcordia can
re-file when the Supreme Court of Appeal of South Africa has
issued a judgment in the case. We do not, however, reach the
issue of whether we can entertain a new petition pursuant to the
New York Convention only if the arbitral award is reinstated by
the South African Supreme Court.
Arab Republic of Egypt, 939 F. Supp. 907 (D.D.C. 1996)
(enforcing an arbitral award that had been nullified by a court in
the situs country); Article V (“Recognition and enforcement of
the award may be refused . . . ) (emphasis added). Again, we see
no reason to reach this question in light of the pending action in
South Africa.
15