Vantage Deepwater Company v. Petrobras Amer ( 2020 )

Case: 19-20435 Document: 00515492585 Page: 1 Date Filed: 07/16/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 19-20435
FILED
July 16, 2020
Lyle W. Cayce
VANTAGE DEEPWATER COMPANY; VANTAGE DEEPWATER Clerk
DRILLING, INCORPORATED,
Plaintiffs - Appellees
v.
PETROBRAS AMERICA, INCORPORATED; PETROBRAS VENEZUELA
INVESTMENTS & SERVICES B.V.; PETROLEO BRASILEIRO S.A.-
PETROBRAS,
Defendants - Appellants
Appeal from the United States District Court
for the Southern District of Texas
Before SOUTHWICK, COSTA, and DUNCAN, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
This is an appeal of a district court’s order confirming a $622 million
arbitration award. The defendants argue that, because public policy precludes
enforcing the award, it should have been vacated. The defendants also argue
that the district court erred in denying the defendants’ discovery motions.
We AFFIRM.
FACTUAL AND PROCEDURAL BACKGROUND
The parties in this case are oil and gas companies, incorporated and
based in different countries. Vantage Deepwater Company is a Cayman
Islands company; Vantage Deepwater Drilling, Inc., is a Delaware corporation
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with its principal place of business in Texas (collectively, “Vantage”). Vantage
operates a fleet of oil rigs. Petrobras Venezuela Investments & Services B.V.
is a Dutch company; Petrobras America Inc. is a Delaware corporation; and
Petróleo Brasileiro S.A. – Petrobras is a Brazilian company (the three
collectively, “Petrobras”).
In 2007, Petrobras had not listed Vantage as an approved drilling service
contractor. In exchange for help procuring drilling-services contracts,
Vantage’s largest shareholder and board member Nobu Su, also known as
Hsin-Chi-Su, agreed to pay approximately $30 million in bribes, distributed as
kickbacks to three individuals: Jorge Zelada, Eduardo Musa, and Hamylton
Pinheiro Padilha, Jr. By 2016, a Brazilian criminal investigation revealed the
bribery was part of a larger scheme dubbed Lava Jato (Operation Carwash).
Zelada, Musa, and Padilha were convicted of crimes arising from the scheme
in Brazil. Su and Vantage’s former CEO, Paul Bragg, also were indicted in
Brazil, but briefing states they have not returned to that country. Vantage
told United States regulators in 2017 that it had discovered some evidence that
its then-CEO Bragg and then–board member John O’Leary were at least
willfully blind to Padilha and Su’s bribery. In 2018, the United States
Department of Justice entered a non-prosecution agreement with Petrobras
relating to the fraud. The Justice Department stated that multiple Petrobras
individuals had received bribes to assist Vantage in winning the drilling
contract with Petrobras.
In 2009, Vantage Deepwater Company and Petrobras Venezuela
executed the Agreement for the Provision of Drilling Services (“DSA”). Under
the DSA, Vantage would perform offshore drilling services for Petrobras for an
eight-year term. Also in 2009, Petróleo Brasileiro executed a Form of Payment
and Performance Guaranty, in which it “unconditionally, absolutely and
irrevocably guarantee[d]” Petrobras Venezuela’s obligations under the DSA.
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To fulfill Vantage’s obligations, Vantage’s parent company purchased an ultra–
deepwater oil rig called the Titanium Explorer for over $948 million. The
DSA’s eight-year term began in December 2012.
In August 2013, a Brazilian magazine published an article claiming that
a Vantage shareholder had paid $14.5 million to João Augusto Henriques, a
lobbyist for the Brazilian Democratic Movement Party, to secure a drilling
contract with Petrobras. Petrobras then conducted an internal investigation
into the allegations. The investigatory report recorded attempts to interview
Henriques, but in the end, the report could not “prove the veracity” of the
bribery allegations. The report acknowledged, however, that “Petrobras’s good
practices ceased to be observed” and that there were “deficiencies in the process
of contracting.” The report suggested submitting the report to Brazilian
prosecutors. The report also found that the DSA was “at market value.” A few
months later, the parties executed the Second Novation and Third
Amendment, in which they reaffirmed that the DSA was binding.
About two years into the DSA’s term, in October 2014, Vantage and
Petrobras executed the Third Novation and Amendment Agreement. It was
this agreement that included an arbitration clause, which provided that any
disputes arising out of the DSA as amended by the Third Novation would be
“exclusively and finally resolve[d]” through arbitration conducted by the
International Center for Dispute Resolution of the American Arbitration
Association (“AAA”) in Houston, Texas. Vantage and Petrobras agreed that
the arbitrators would have the “power to rule on objections concerning
jurisdiction, including the existence or validity of [the] arbitration clause and
existence or the validity of” the DSA. The Third Novation also stated that
“[t]he parties waive irrevocably their right to any form of appeal, review or
recourse to any court or other judicial authority, to the extent that such waiver
may be validly made.”
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The DSA prohibited terminating the contract for convenience but
allowed termination if Vantage materially breached or failed to provide its
services. In August 2015, several years before the end of the DSA’s term,
Petrobras terminated the DSA. Immediately thereafter, Vantage demanded
arbitration pursuant to the Third Novation, claiming over $450 million in
expectancy damages and over $800 million in reliance damages. The asserted
expectancy damages were based on lost profit calculations, and the asserted
reliance damages were primarily based on Vantage’s incurring debt to acquire
the Titanium Explorer.
Petrobras responded by arguing it had terminated the DSA for
operational reasons because Vantage materially breached the contract.
Petrobras also argued that the DSA was procured through bribery and
corruption, making the agreement invalid. Petrobras claims it first had actual
knowledge of the bribery only in 2015, after Padilha pled guilty to his role in
the scheme in a Brazilian court. Vantage claims that Petrobras actually had
knowledge after the magazine article was published in 2013, and that
Petrobras ratified the DSA when it agreed to the Third Novation.
Throughout 2016, the parties and the arbitration tribunal, once it was
selected, addressed a variety of procedural issues. The tribunal consisted of
three arbitrators. After Vantage’s first pick, David Keltner, was removed due
to a conflict of interest, Vantage appointed Charles N. Brower, who is a judge
on the Iran–United States Claims Tribunal, an international arbitral tribunal.
Petrobras appointed Mr. James Gaitis. Keltner and Gaitis selected as
chairman Professor William Park of Boston University.
The tribunal held evidentiary hearings between May 16 and June 1,
2017. On June 7, Petrobras moved the AAA to disqualify and remove Judge
Brower. Petrobras gave four reasons to support its motion. First, Petrobras
asserted that Brower appeared partial because he “continuously made
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inappropriate, off-the-record comments under his breath while [Petrobras’s]
witnesses were being cross-examined, and while [Petrobras’s] counsel cross-
examined [Vantage’s] witnesses.” Second, Petrobras asserted that Brower
continually and “improperly advocated” for Vantage including by cross-
examining one of Petrobras’s fact witnesses for nearly two hours. Third,
Petrobras asserted that during the hearing Brower incorrectly summarized the
direct evidence of bribery, which must have been because he was either
“intentionally ignoring other evidence” or “intentionally misstating the
evidence related to bribery and corruption.” Last, Petrobras asserted that
Brower frequently dozed off during the hearing, indicating that he could not
diligently perform his duties.
The AAA spent some time investigating the assertions of bias. Chairman
Park’s billing statement, for example, showed he communicated with the AAA
for about five and a half hours. The AAA denied the motion in a sentence.
The final award was issued on June 29, 2018. A majority of the
arbitrators — Chairman Park and Judge Brower — awarded Vantage over
$620 million. Gaitis wrote a one-paragraph dissent that claimed unfairness in
the proceedings:
I object to, and I dissent from, the tribunal majority’s Final Award.
This Objection and Dissent is based not only on my differing
conclusions regarding the merits of the parties’ dispute, but also
on my belief and conclusion that the prehearing, hearing, and
posthearing processes that led to the issuance of the Final Award
have denied [Petrobras] in this proceeding the fundamental
fairness and due process protections meant to be provided to
arbitrating parties by Sections 10(a)(1), 10(a)(2), 10(a)(3), 10(a)(4),
and Chapters 2 and 3 of the Federal Arbitration Act, 9 U.S.C. § 1,
et seq.
In July 2018, Vantage filed a petition to confirm the arbitration award
in the United States District Court for the Southern District of Texas.
Petrobras opposed confirmation and moved the district court to vacate the
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award. To support its motion for vacatur, Petrobras sought leave to depose
Gaitis. Petrobras claimed that the additional testimony would provide a more
complete record on which the district court could evaluate the arbitral award.
After a hearing in December 2018, the district court denied the motion to
subpoena Gaitis. Two months later, Petrobras moved for leave to serve a
subpoena on the AAA. Petrobras sought the AAA’s documents in connection
with the challenges to Brower in the arbitration. The district court also denied
that motion.
In May 2019, the district court denied the motion to vacate and granted
Vantage’s petition to confirm the award. The court entered final judgment and
ordered Petrobras to pay $733,968,000 (the arbitration award plus interest),
and post-judgment interest. Petrobras appealed.
DISCUSSION
This case implicates Chapter 3 of the Federal Arbitration Act (“FAA”), 9
U.S.C. §§ 301–307, which governs nondomestic arbitration awards subject to
the Inter-American Convention on International Commercial Arbitration of
January 30, 1975, T.I.A.S. No. 90-1027, reprinted following Pub. L. 101-369,
104 Stat. 448 (1990) (the “Panama Convention”). The FAA requires that a
court confirm an arbitration award unless there is a ground for refusing to
enforce the award as specified in the Panama Convention. 9 U.S.C. § 207; see
id. § 302 (applying Section 207 to cases governed by Panama Convention). The
Supreme Court has recognized an “emphatic federal policy in favor of arbitral
dispute resolution.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
473 U.S. 614, 631 (1985). “A court may not review the merits of an [arbitration]
award — it must accept the facts found by the arbitrator and the arbitrator’s
interpretation of the contract and applicable law.” Manville Forest Prods.
Corp. v. United Paperworkers Int’l Union, 831 F.2d 72, 74 (5th Cir. 1987).
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We review the district court’s legal determinations de novo and findings
of fact for clear error. Hughes Training Inc. v. Cook, 254 F.3d 588, 592 (5th
Cir. 2001). Review of the underlying arbitral award is “exceedingly
deferential,” though. Petrofac, Inc. v. DynMcDermott Petroleum Operations
Co., 687 F.3d 671, 674 (5th Cir. 2012). Although we “grant arbitrators
considerable leeway when reviewing most arbitration decisions,” we do not
“give extra leeway to district courts that uphold arbitrators.” First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 948 (1995).
Petrobras argues that public policy precluded confirming the arbitration
award. Petrobras also argues that the district court’s denial of its discovery
motions led the court to base its confirmation order and denial of vacatur on
an incomplete record. Vacatur is warranted, Petrobras contends, because the
arbitrators failed to issue a “reasoned award” as to Petróleo Brasileiro. In
addition to responding to Petrobras’s arguments, Vantage argues that
Petrobras waived its right to appeal. We will start by addressing the appeal
waiver. Because in the end we do not need to decide that question, we then
turn to Petrobras’s claims of error.
I. Appeal waiver
A valid appeal waiver does not deprive the court of jurisdiction;
accordingly, if affirming the judgment is a clearer resolution than deciding the
validity of the appeal waiver, we can affirm. See In re Deepwater Horizon, 934
F.3d 434, 441 (5th Cir. 2019). The waiver appears in the Third Novation: “The
Parties waive irrevocably their right to any form of appeal, review or recourse
to any court or other judicial authority, to the extent that such waiver may be
validly made.” Courts “rigorously enforce arbitration agreements according to
their terms.” American Exp. Co. v. Italian Colors Rest., 570 U.S. 228, 233
(2013). Contractual clauses must be “clear and unequivocal,” though, in order
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to waive a right. Ensco Int’l, Inc. v. Certain Underwriters at Lloyd’s, 579 F.3d
442, 443 (5th Cir. 2009) (waiving the right to removal)
Vantage reasons that because federal and Texas law enforce appeal
waivers, we should enforce the appeal waiver here. See id.; Bennett v. Comm’n
for Lawyer Discipline, 489 S.W.3d 58, 69 n.1 (Tex. App.— Houston [14th Dist.]
2016, no pet.). To be clear, Vantage does not argue on appeal that the Third
Novation barred the district court’s review of the award, only that appellate
review of the district court’s judgment is barred. Petrobras replies that it could
not waive its right to appeal under the Panama Convention or the FAA and
that there was no clear and unequivocal indication of waiver.
The parties cite competing persuasive authorities from other circuits.
The Ninth Circuit held that “the statutory grounds for vacatur in the FAA may
not be waived or eliminated by contract.” In re Wal-Mart Wage & Hour Emp.
Practices Litig., 737 F.3d 1262, 1268 (9th Cir. 2013). The court was rejecting
a waiver clause that would have precluded all federal-court review. Id. at 1266
n.3. Because parties may not contract for expanded judicial review, see Hall
St., 552 U.S. at 578, the Ninth Circuit reasoned that private agreements
eliminating judicial review of arbitration awards also are not enforceable. Wal-
Mart, 737 F.3d at 1267.
The Second Circuit stated that those “seeking to enforce arbitration
awards through federal-court confirmation judgments may not divest the
courts of their statutory and common-law authority to review both the
substance of the awards and the arbitral process for compliance with § 10(a).”
Hoeft v. MVL Grp., Inc., 343 F.3d 57, 66 (2d Cir. 2003), overruled on other
grounds by Hall St. Assocs. L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008).
The Tenth Circuit enforced the following contractual provision that it
considered to waive appellate review only: “Judgment upon the award
rendered by the arbitrator shall be final and nonappealable and may be
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entered in any court having jurisdiction thereof.” MACTEC, Inc. v. Gorelick,
427 F.3d 821, 827 (10th Cir. 2005). The court concluded “that contractual
provisions limiting the right to appeal from a district court’s judgment
confirming or vacating an arbitration award are permissible, so long as the
intent to do so is clear and unequivocal.” Id. at 830.
Vantage argues that MACTEC supplies the applicable rule while
Petrobras calls that rule “legally doubtful.” Petrobras instead would have us
extend Wal-Mart to waivers of appellate review as well. Petrobras further
contends that parties cannot contractually deprive this court of its authority to
review arbitration awards.
The parties agree that if the waiver clause barred all federal court review
— namely, the ability to oppose confirmation and move for vacatur in district
court — then the waiver would not be enforceable. The waiver provision in the
DSA, unlike the one in MACTEC, states that the waiver applies only to the
extent legally permissible. MACTEC, 427 F.3d at 829. This does not make the
waiver equivocal. The “to the extent” clause preserves valid applications of the
appeal waiver, even if other applications of the clause are invalid.
Wal-Mart neither contradicted nor endorsed MACTEC; the two cases
dealt with different issues. Wal-Mart, 737 F.3d at 1266 n.3. We are inclined
to think the Tenth Circuit’s approach is persuasive. Still, if the district court’s
judgment is affirmable on the merits, we do not need to discern the law for this
circuit on such appeal waivers. We therefore will now examine the merits.
II. Motion to confirm
Article V(2)(b) of the Panama Convention allows a country to refuse to
recognize or execute an arbitration decision under the Convention if “the
recognition or execution of the decision would be contrary to the public policy”
of that country. The party asserting the public policy defense bears the burden
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of proving United States public policy would be violated by enforcing the
award. Asignacion v. Rickmers Genoa Schiffahrtsgesellschaft mbH & Cie KG,
783 F.3d 1010, 1016–17 (5th Cir. 2015). “The public policy defense is to be
‘construed narrowly to be applied only where enforcement would violate the
forum state’s most basic notions of morality and justice.’” Karaha Bodas Co.
v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Karaha Bodas
II), 364 F.3d 274, 306 (5th Cir. 2004). Further, a public policy rendering a
contract unenforceable “must be ‘explicit,’ ‘well defined,’ and ‘dominant.’ It
must be ‘ascertained by reference to the laws and legal precedents and not from
general considerations of supposed public interests.’” East Associated Coal
Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S. 57, 62 (2000) (quoting
W.R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766 (1983)). The public
policy defense under the Panama Convention is “substantively identical” to the
one set forth in the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, commonly called the “New York Convention.” See, e.g.,
TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 933 (D.C. Cir. 2007).
Petrobras argues that enforcing the arbitration award violates United
States public policy because the award requires Petrobras to pay damages
based on a contract illegally procured through bribery. Even if this country’s
public policy would bar enforcement of such contracts, the district court relied
on the arbitrators’ findings, first, that Petrobras had not proved Vantage was
guilty of bribery and, second, that Petrobras “knowingly ratified the DSA.”
Accepting those fact findings, the district court then considered whether public
policy would bar enforcing a bribery-procured but ratified contract. The court
accepted another district court’s rejection of a public policy defense if both
parties engaged in the same fraudulent misconduct. See Tamimi Glob. Co. v.
Kellogg Brown & Root L.L.C., No. CIV.A. H-11-0585, 2011 WL 1157634, at *3
(S.D. Tex. Mar. 24, 2011). Because both Vantage and Petrobras allegedly
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engaged in misconduct, and the contract was later ratified, the district court
concluded there was no public policy impediment to enforcement.
A. How much deference
The first question on this issue is whether the district court erroneously
deferred to the arbitrators’ ratification finding. Petrobras asserts that the
district court mistakenly deferred to the arbitrators’ public policy conclusions
rather than reviewing those conclusions de novo. Petrobras does not dispute
that if ratification occurred, then enforcing the arbitration award does not
violate public policy; rather, Petrobras argues that the arbitrators’ findings do
not amount to legal ratification.
“Under the New York Convention, the rulings of the Tribunal
interpreting the parties’ contract are entitled to deference.” Karaha Bodas II,
364 F.3d at 290. “The court may not refuse to enforce an arbitral award solely
on the ground that the arbitrator may have made a mistake of law or fact.” Id.
at 288. This is because “[t]he parties did not bargain for the facts to be found
by a court, but by an arbitrator . . . . Nor does the fact that it is inquiring into
a possible violation of public policy excuse a court for doing the arbitrator’s
task.” United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 45 (1987).
Petrobas relies on one of this court’s opinions to support that the district
court should have considered the public policy issue de novo. See Gulf Coast
Industries Workers Union v. Exxon Co., 991 F.2d 244, 248 n.5 (5th Cir. 1993).
The case involved a dispute about whether an employee was discharged for
just cause. Id. at 247. We stated that a court “enjoy[s] more latitude in
reviewing the arbitrator’s decision” when public policy violations are alleged.
Id. at 249. A court defers to an arbitrator’s findings of fact “but review[s] his
conclusions de novo,” because “[c]ourts are the ultimate arbiters of public
policy, not arbitrators.” Id. at 248 n.5, 249. The Supreme Court has similarly
stated that “the question of public policy is ultimately one for resolution by the
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courts.” W.R. Grace & Co., 461 U.S. at 766. Still, courts must “tak[e] the facts
as found by the arbitrator.” Gulf Coast, 991 F.2d at 249. The Gulf Coast
arbitration award would have reinstated an employee to a position working
with dangerous equipment. Id. at 250, 255. Though it was clear that an
employee’s use of a controlled substance violated public policy, the problem
with the arbitration award was elsewhere. Public policy prohibited reinstating
a worker who posed a safety hazard. Id. at 250, 255. We set aside the
reinstatement of the worker under de novo review of public policy. Id. at 257.
Petrobras is not seeking our review of whether the final award violated
public policy. Instead, Petrobras wants us to decide whether the underlying
contract violated public policy. Petrobras questions whether any ratification
occurred that would obviate any public policy problem in the DSA. We agree
with the district court that “[t]he public policy exception cannot be used to
simply question the merits of the underlying award.” Hardy Expl. & Prod.,
(India), Inc. v. Gov’t of India, Ministry of Petroleum & Nat. Gas, 314 F. Supp.
3d 95, 109 (D.D.C. 2018).
The Second Circuit applied this principle in Europcar Italia, S.p.A. v.
Maiellano Tours, Inc., 156 F.3d 310 (2d Cir. 1998). We have cited Europcar
favorably for the proposition that a reviewing court should not reconsider an
arbitrator’s findings. Karaha Bodas II, 364 F.3d at 288 n.2. In Europcar, the
appellant argued enforcing an arbitration award would violate public policy
where the award was based on an allegedly forged agreement. 156 F.3d at 315.
The Second Circuit distinguished between fraud that may lead to application
of the public policy exception under the Convention and fraud that would not:
[The defendant-appellant] has apparently confused the issue of a
fraudulently obtained arbitration agreement or award, which
might violate public policy and therefore preclude enforcement,
with the issue of whether the underlying contract that is subject of
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the arbitrated dispute was forged or fraudulently induced — a
matter to be determined exclusively by the arbitrators.
Id. (citations omitted). The Europcar court observed that the appellant did
not dispute the validity of the supplemental arbitration agreement. Id.
Further, the appellant could not “seek to relitigate” the arbitrators’
determination of whether the parties’ underlying agreement was forged —
even if the arbitrators had made an error of law or fact. Id. at 315–16.
“[W]hether the underlying contract that is the subject of the arbitrated dispute
was forged or fraudulently induced” was a question for the arbitrators and was
not the basis of a public policy defense. Id. Therefore, enforcing the arbitration
award did not violate public policy. Id. at 316.
Like the underlying conduct in Gulf Coast, the underlying conduct here,
bribery, does violate public policy. See 991 F.2d at 250. Unlike in Gulf Coast,
though, enforcing the arbitration award does not create a situation contrary to
public policy, such as putting anyone’s safety at risk. The arbitrators found
Petrobras ratified the DSA. When we defer to that finding, the legal conclusion
follows that the DSA, and the arbitration award, did not violate public policy.
Further, as in Europcar, the arbitration agreement here is external to
the underlying contract and the arbitration agreement’s validity is not
disputed. 156 F.3d at 315. Also, both in Europcar and here, the arbitrators
had the power to rule on the underlying contract’s validity. Id. The arbitration
clause in the Third Novation provided that the arbitrators would have power
to rule on the existence and validity of the DSA. Whether a contract should be
voided because of bribery is a question about the validity of the DSA. The
tribunal answered that question when it found that Petrobras ratified the DSA
and thus waived bribery objections. The arbitrators also found that Petrobras
had not established that “Vantage knew of or participated in any bribery.”
These findings were within the tribunal’s authority to rule on the DSA’s
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validity. As such, the validity of the DSA was rightly a question for the
arbitrators rather than the district court.
Petrobras also argues that the district court and the arbitrators relied
on a flawed definition of ratification. Even if that is so, mistakes of law or fact
are not grounds for denying confirmation. Karaha Bodas II, 364 F.3d at 288.
We conclude that the district court did not engage in inappropriate
deference to the arbitrator’s decision.
B. “Mutual misconduct”
Petrobras also takes issue with what it perceives as the district court’s
ultimate conclusion that “[i]t does not violate public policy to enforce an
arbitration award against parties who were alleged to have mutually engaged
in mutual misconduct during the formation of a contract, particularly when
that contract was later ratified.” Petrobras disputes that Petrobras engaged
in misconduct in the contracting process and that mutual misconduct does not
override public policy defenses. Mutual misconduct was not the basis of the
district court’s confirmation order, though. The district court accurately
defined ratification, recognized the arbitrators’ ratification finding, and thus
concluded that “Petrobras has not met its burden of showing that the
Tribunal’s contract interpretation violates some explicit public policy.” The
court continued:
Petrobras’s attempt to relitigate the merits of its contract dispute
and the general appeal to public policy against paying and
accepting bribes to form contracts does not meet the high burden
of showing that enforcement of the actual arbitration decision in
this case would violate the most basic notions of morality and
justice.
The district court did not base its decision just on “mutual misconduct.” We
also need not concern ourselves with the precise reasoning by the district court,
because we review de novo whether the award should have been confirmed.
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Asignacion, 783 F.3d at 1014–15. There was no public policy bar to
confirmation.
III. Discovery motions
District courts occasionally allow discovery in vacatur and confirmation
proceedings. See FED. R. CIV. P. 81(a)(6)(B). Previously we have endorsed a
flexible inquiry for district courts to use when assessing discovery requests in
the context of such proceedings: “the court must weigh the asserted need for
hitherto undisclosed information and assess the impact of granting such
discovery on the arbitral process.” Karaha Bodas II, 364 F.3d at 305 (quoting
Lummus Glob. Amazonas S.A. v. Aguaytia Energy del Peru S.R. Ltda., 256 F.
Supp. 2d 594, 626 (S.D. Tex. 2002)). The court should focus on “specific issues
raised by the party challenging the award and the degree to which those issues
implicated factual questions that cannot be reliably resolved without some
further disclosure.” Id. “The party seeking discovery bears the burden of
showing its necessity.” Freeman v. United States, 556 F.3d 326, 341 (5th Cir.
2009). Moreover, “[t]he loser in arbitration cannot freeze the confirmation
proceedings in their tracks and indefinitely postpone judgment by merely
requesting discovery.” Imperial Ethiopian Gov’t v. Baruch-Foster Corp., 535
F.2d 334, 337 (5th Cir. 1976). We review a district court’s order denying
discovery for an abuse of discretion. JP Morgan Chase Bank, N.A. v.
Datatreasury Corp., 936 F.3d 251, 255–56 (2019).
Two refusals to subpoena witnesses are at issue. First, the district court
disallowed a deposition of Gaitis, the dissenting arbitrator. Second, the court
refused to authorize a subpoena on the AAA itself, regarding its investigation
into the request to disqualify Judge Brower. We discuss both.
A. Motion for leave to depose Gaitis
Petrobras asserts that discovery was necessary to resolve the question of
the arbitrators’ bias and that “glaring red flags” in the record indicate evident
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partiality and misconduct, 9 U.S.C. § 10(a)(2), (3). Before identifying these red
flags, we will address the parties’ agreement not to depose the arbitrators.
When an organization’s arbitration rules are incorporated into the
underlying agreement, those rules are treated the same as any other
contractual provision. See C & L Enters., Inc. v. Citizens Band Potawatomi
Indian Tribe of Okla., 532 U.S. 411, 419 n.1 (2001). We seek to “give effect to
the intent of the parties,” including to any contractual limitations. Stolt-
Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010).
Here, the arbitration clause in the Third Novation incorporates the
AAA’s Commercial Arbitration Rules. Rule 52(e) of the AAA’s rules provides
that “[p]arties to an arbitration under these rules may not call the arbitrator
. . . as a witness in litigation or any other proceeding relating to the arbitration”
and an arbitrator is “not competent to testify as [a] witness[] in such
proceeding.” Vantage says this provision was enforceable, so the district court
did not abuse its discretion in denying Petrobras’s motion. Petrobras does not
raise any general contract defenses against enforcing Rule 52(e), but it asserts
that enforcing the rule here would “eviscerate the integrity of the arbitral
process.” This general policy concern does not persuade us that the district
court erred in enforcing the incorporated terms of the contract.
Further, even without Rule 52(e), Petrobras was not entitled to depose
Gaitis. Petrobras points to the unusual and strong statement in the dissent:
that the entire arbitration, “the prehearing, hearing, and posthearing
processes,” denied Petrobras “fundamental fairness and due process
protections.” Petrobras also claims that several moments during the
arbitration hearings substantiate the dissent’s assertion, such as when Judge
Brower made comments that Petrobras perceived as hostile to Petrobras. For
example, Judge Brower allegedly made off-the-record comments such as
“already talked about” and “asked and answered.” We agree with the district
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court’s view of these matters: “Although Petrobras may feel that the comments
allegedly made by Judge Brower were abrasive, critical, or rude, these same
comments can be viewed as Judge Brower’s efforts to move the proceeding
along . . . .”
The examples of Judge Brower’s allegedly biased conduct at the hearings
do not establish that the district court abused its discretion when it refused to
allow Petrobras to depose Gaitis. We have not discovered any court of appeals
decision holding that a district court abused its discretion in denying discovery
from an arbitrator about the substance of the award. We see nothing in this
record to cause us to be the first.
B. Motion to subpoena the AAA
After the district court denied the motion for leave to subpoena Gaitis,
Petrobras moved for leave to serve a subpoena on the AAA. Petrobras sought
to discover documents from the AAA’s investigation into Judge Brower’s
alleged bias. That investigation occurred because Petrobras moved to
disqualify Judge Brower after the merits hearing.
First, we conclude that the AAA’s ultimate finding that Judge Brower
was not biased is hardly a “red flag” indicating that discovery was needed.
Likewise, the arbitral record did not show signs of partiality or misconduct that
compelled the district court to delay the case in order for Petrobras to serve a
subpoena on the AAA.
It is relevant that there was no motion for this discovery against the AAA
until all the parties had finished briefing the respective motions to confirm and
vacate. It is true the deadlines for discovery and for new motions were still
ahead. The discovery motion came, though, only a few weeks before the merits
hearing on the motions to confirm and to vacate. Although Petrobras’s motion
was not technically overdue, the district court reasonably considered that
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additional discovery would cause further delay to the final resolution of the
case. See Karaha Bodas II, 364 F.3d at 304. 1
Moreover, several circuits have held that arbitral immunity extends to
organizations like the AAA. Olson v. Nat’l Ass’n of Sec. Dealers, 85 F.3d 381,
382 (8th Cir. 1996); New England Cleaning Servs. v. AAA, 199 F.3d 542, 545
(1st Cir. 1999). In an unpublished decisions, a panel of this court found arbitral
immunity for the AAA. Jason v. AAA, Inc., 62 F. App’x 557 (5th Cir. 2003).
Regardless of the exact dimensions of arbitral immunity, Petrobras has
not shown that the district court abused its discretion in denying the discovery
motions.
IV. Motion to vacate
The extent of judicial review of arbitral awards under the Panama
Convention depends in part on where the award was made. Relevant in this
case is that when the United States is the country of primary jurisdiction,
meaning the country where the arbitration took place, our courts “have much
broader discretion to set aside an award.” Karaha Bodas Co. v. Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara (Karaha Bodas I), 335 F.3d 357,
368 (5th Cir. 2003). The arbitration at issue here was held in Texas, so the
district court could entertain Petrobras’s motion to vacate the award “in
accordance with the country’s domestic arbitral law and its full panoply of
express and implied grounds for relief.” Gulf Petro Trading Co. v. Nigerian
Nat’l Petroleum Corp., 512 F.3d 742, 746 (5th Cir. 2008).
1 In an unpublished decision, this court considered the denial of discovery that was
first requested after all the merits briefs were filed and after the agreed-to discovery deadline.
Woods v. P.A.M. Transp. Inc.-L.U., 440 F. App’x 265, 268 (5th Cir. 2011). We emphasized
that discovery cannot be used just to delay confirmation proceedings, “particularly
considering the strong policy favoring expeditious enforcement of arbitration awards.” Id.
That reasoning appears sound to us.
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Petrobras moved to vacate the arbitration award based on Section
10(a)(2), (3), and (4) of the FAA. 2 Under Section 10(a)(2), Petrobras argued
Judge Brower’s alleged bias indicated partiality. Under Section 10(a)(3),
Petrobras argued the tribunal had failed to consider certain evidence. Last,
under Section 10(a)(4), Petrobras argued that the award was not reasoned with
respect to Petróleo Brasileiro. The district court disagreed on each point. On
appeal, Petrobras argues that the district court should not have denied the
vacatur motion with respect to subsections (a)(2) and (a)(3) without first
allowing discovery. We already held that the district court did not abuse its
discretion in denying the discovery motions, and Petrobras raises no other
arguments in support of vacatur under Section 10(a)(2) and (3).
What remains is Petrobras’s argument under Section 10(a)(4). That
section provides for vacatur “where the arbitrators exceeded their powers, or
so imperfectly executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.” 9 U.S.C. § 10(a)(4). An argument for
vacatur under Section 10(a)(4) must be balanced against the parties’
agreement to have arbitrators interpret their agreement, which means that
2 Although the FAA provides default rules, parties can contract to apply other rules.
Volt Info. Scis., Inc. v. Bd. of Trustees, 489 U.S. 468, 474–75 (1989). Here, the dispute-
resolution section of the Third Novation contains a choice-of-law provision selecting Texas
law. Thus, one might ask whether Texas or federal vacatur standards apply. See BNSF Ry.
Co. v. Alstom Transp., Inc., 777 F.3d 785, 790–91 (5th Cir. 2015). In one case, we found
federal vacatur standards applied because the choice-of-law clause did not expressly
reference California’s arbitration law. Cooper v. WestEnd Capital Mgmt., L.L.C., 832 F.3d
534, 544 (5th Cir. 2016). Here, though, the choice-of-law clause is specific to the “arbitration
provisions” of the Third Novation. Although the clause does not name the Texas General
Arbitration Act, the clause is expressly about arbitration, and the clause is in the section
establishing how the parties may enforce an arbitration award. We are therefore not
persuaded that the FAA’s vacatur standards are the right ones to apply in this case. Texas
and federal vacatur standards do not significantly differ, though, compare 9 U.S.C. § 10, with
TEX. CIV. PRAC. & REM. § 171.088, and the parties discuss only the federal vacatur standards.
Because the relevant bases for vacatur exist in both federal and state law, we will consider
the arguments under the FAA as presented by the parties.
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“an arbitral decision even arguably construing or applying the contract must
stand, regardless of a court’s views of its (de)merits.” Oxford Health Plans LLC
v. Sutter, 569 U.S. 564, 569 (2013) (quotation marks omitted). “[T]he
substantive question of whether an arbitrator has exceeded his arbitration
powers is a function of [our] highly deferential standard of review in such cases:
an arbitrator has not exceeded his powers unless he has utterly contorted . . .
the essence of the contract.” Timegate Studios, Inc. v. Southpeak Interactive,
L.L.C., 713 F.3d 797, 802–03 (5th Cir. 2013). In other words, the arbitrator
exceeds his authority where he acts “contrary to an express contractual
provision.” PoolRe Ins. Corp. v. Organizational Strategies, Inc., 783 F.3d 256,
265 (5th Cir. 2015). We resolve any doubts in favor of arbitration. Rain CII
Carbon, LLC v. ConocoPhillips Co., 674 F.3d 469, 472 (5th Cir. 2012).
The Third Novation specified that the arbitrators were required to
“render a reasoned award in writing.” In one recent opinion, we outlined a
“reasoned award” continuum. YPF S.A. v. Apache Overseas, Inc., 924 F.3d 815,
820 (5th Cir. 2019). There is no specific definition of the term, but it requires
“something short of findings and conclusions but more than a simple result.”
Id. (quoting Sarofim v. Trust Co. of the W., 440 F.3d 213, 215 n.1 (5th Cir.
2006)). In other words, we ask whether the arbitrators “issued more than a
mere announcement.” Id.
Petrobras argues that the arbitration award was not reasoned at least
as it relates to Petróleo Brasileiro. That company is not a party to the DSA or
its amendments but rather is party to the Form of Payment and Performance
Guaranty. Thus, Petróleo Brasileiro contested the arbitrators’ jurisdiction.
The guaranty says that the laws of England and Wales apply to disputes
arising out of the document. Under English law, Petrobas argued that
Vantage’s claim against Petróleo Brasileiro was “premature because the
Guaranty is a secondary suretyship obligation, not an independent first
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demand instrument.” Vantage, though, argued that Petróleo Brasileiro was
bound to all the provisions of the parties’ agreements, including the arbitration
clause in the Third Novation. Vantage also argued that the guaranty’s choice-
of-law clause was superseded by the Third Novation’s.
On appeal, Petrobras argues that the arbitration award was not
reasoned because it did not address the arguments that the guaranty did not
create immediate liability for Petróleo Brasileiro. The arbitrators determined
that because Petróleo Brasileiro was a “primary obligor under the DSA and the
Guaranty,” Petróleo Brasileiro “remain[ed] responsible for breaches of [the
DSA].” The arbitration award discusses whether Petróleo Brasileiro was a
proper defendant, explaining the claimants’ position, the respondents’ position,
and the tribunal’s own analysis. This is “more than a simple result.” Sarofim,
440 F.3d at 215 n.1. Or “[i]t is, at the very least, doubtful that the award is not
more than a simple result.” Rain CII Carbon, 674 F.3d at 474. Accordingly,
vacatur as to Petróleo Brasileiro was not warranted.
AFFIRMED.
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