Chevron Corporation v. The Republic of Ecuador , 795 F.3d 200 ( 2015 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 12, 2015 Decided August 4, 2015
No. 13-7103
CHEVRON CORPORATION AND TEXACO PETROLEUM COMPANY,
APPELLEES
v.
THE REPUBLIC OF ECUADOR,
APPELLANT
Appeal from the United States District Court
for the District of Columbia
(No. 1:12-cv-01247)
Mark N. Bravin argued the cause for appellant. With him
on the briefs were Eric M. Goldstein and Eric T. Werlinger.
Jeffrey S. Bucholtz argued the cause for appellees. With
him on the brief were Brian Callanan, James P. Sullivan,
Brian A. White, and Caline Mouawad.
Before: GARLAND, Chief Judge, and SRINIVASAN and
WILKINS, Circuit Judges.
Opinion for the Court filed by Circuit Judge WILKINS.
2
WILKINS, Circuit Judge:
For the last twenty years, the Republic of Ecuador and
energy industry giant Chevron Corporation have been locked
in a struggle involving a series of lawsuits related to an
investment and development agreement. The dispute began
in the Ecuadorian court system, where it languished
unresolved for over a decade. It then proceeded to an
international arbitration tribunal, whose verdict in Chevron’s
favor was appealed and sustained at all levels of the Dutch
judiciary. The dispute made it to our shores in an action for
confirmation of the arbitral award before the District Court
for the District of Columbia. The District Court confirmed
the arbitral award, prompting yet another appeal. We now
affirm.
I.
In 1973, Chevron 1 and Ecuador signed an agreement
allowing Chevron to develop Ecuadorian oil fields in
exchange for providing below-market oil to the Ecuadorian
government for domestic use. The deal was set to expire in
1992, and the parties were unable to agree to an extension.
As the expiration date approached, Chevron filed several
breach of contract suits against Ecuador. In 1995, Chevron
and Ecuador signed a settlement agreement conclusively
terminating all rights and obligations between the parties.
The agreement provided for the continuation of the pending
lawsuits.
In 1993, the United States and Ecuador signed a Bilateral
Investment Treaty (“BIT”)—formally known as the Treaty
1
For purposes of this opinion, “Chevron” refers both to the
Chevron Corporation and to its predecessor, Texaco Petroleum Co.
3
Between the Government of the United States of America and
the Government of the Republic of Ecuador for the
Encouragement and Reciprocal Protection of Investment—
which took effect in 1997. Under this treaty, Ecuador made a
standing offer to American investors to arbitrate disputes
involving investments that existed on or after the treaty’s
effective date. J.A. 297, 300. For purposes of the BIT, the
definition of “investment” included “a claim to money or a
claim to performance having economic value, and associated
with an investment.” J.A. 294.
In 2006, Chevron commenced an international arbitration
action before a three-member tribunal based out of The
Hague, claiming that Ecuador had violated the BIT by failing
to resolve its lawsuits in a timely fashion. Ecuador objected
to the tribunal’s jurisdiction, arguing that it had never agreed
to arbitrate with Chevron. The basis of this objection was
Ecuador’s contention that Chevron’s investments in Ecuador
had terminated no later than 1995, two years prior to the entry
into force of the BIT. The tribunal rejected the jurisdictional
challenge, finding that Chevron’s lawsuits were
“investments” within the meaning of the BIT, and, after
determining that Ecuador had delayed disposition of the
lawsuits, ultimately decided against Ecuador on the majority
of the breach of contract claims, awarding Chevron
approximately $96 million. Ecuador challenged the award in
the Dutch court system; the challenge was rejected by the
District Court of The Hague, The Hague Court of Appeal, and
the Dutch Supreme Court.
On July 27, 2012, Chevron petitioned the District Court
to confirm the arbitral award under the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards
(“New York Convention”), which has been incorporated into
the Federal Arbitration Act. See 9 U.S.C. §§ 201-208.
4
Ecuador raised three arguments in opposition: (1) that the
District Court lacked subject-matter jurisdiction under the
Foreign Sovereign Immunities Act (“FSIA”); (2) that
confirmation should be denied under the New York
Convention; and (3) that a stay should be granted until the
Dutch Supreme Court could resolve the then-pending appeal
of the award.
The District Court determined that it had subject-matter
jurisdiction under 28 U.S.C. § 1605(a)(6), which provides that
sovereign immunity does not prevent a suit to confirm an
award made pursuant to an arbitration agreement governed by
an international treaty, because the award was made pursuant
to the BIT and governed by the New York Convention. J.A.
1427-28. The District Court rejected Ecuador’s argument that
the FSIA required the District Court to undertake a de novo
analysis of whether the dispute was arbitrable under the BIT.
J.A. 1428-29. The District Court reviewed the question of
arbitrability, however, as part of its consideration of whether
the confirmation should be denied under the New York
Convention, J.A. 1430-45, and found that the parties had
“clearly and unmistakably agreed” that the tribunal would
resolve such questions. J.A. 1436. Having made this finding,
the District Court engaged in a deferential review of the
tribunal’s arbitrability decision and determined that it was
clearly supported by the text of the BIT. J.A. 1439. The
District Court rejected Ecuador’s argument that confirming
the order was against public policy and denied the requested
stay. J.A. 1439-46. Ecuador filed a timely appeal. We
affirm.
II.
As a general matter, the FSIA grants foreign states
immunity from the jurisdiction of the courts of the United
5
States. 28 U.S.C. § 1604. In enacting the FSIA, however,
Congress enumerated several exceptions to this jurisdictional
restriction. These exceptions “provide[] the sole basis for
obtaining jurisdiction over a foreign state in federal court.”
Argentine Republic v. Amerada Hess Shipping Corp., 488
U.S. 428, 439 (1989); see also Verlinden B.V. v. Cent. Bank of
Nigeria, 461 U.S. 480, 488-89 (1983). At issue in this case is
the arbitration exception, which provides for federal court
jurisdiction “in any case . . . in which the action is brought,
either to enforce an [arbitration] agreement made by the
foreign state with or for the benefit of a private party . . . or to
confirm an award made pursuant to such an agreement to
arbitrate, if . . . the agreement or award is or may be governed
by a treaty . . . in force for the United States calling for the
recognition and enforcement of arbitral awards.” 28 U.S.C. §
1605(a)(6).
The District Court concluded that the jurisdictional
requirements of the FSIA were met because “the Award’s
own language indicates it was rendered pursuant to the BIT”
and “the Award is clearly governed by the New York
Convention.” Chevron Corp. v. Republic of Ecuador, 949 F.
Supp. 2d 57, 62 (D.D.C. 2013). Ecuador argues that the
District Court failed to determine in the first instance that an
arbitration agreement existed, instead deferring to the
judgment of the arbitrator. Had the District Court undertaken
the correct analysis, the argument goes, it would have
determined that Ecuador had never agreed to arbitrate its
dispute with Chevron, thus denying the District Court
jurisdiction to enforce the arbitral award. Chevron primarily
argues that the statute permits jurisdiction so long as the
plaintiff presents a non-frivolous claim that the foreign
sovereign has consented to arbitration.
6
A.
There are two types of jurisdictional authorizations: (1)
“jurisdiction [that] depends on particular factual propositions”
and (2) “jurisdiction [that] depends on the plaintiff’s asserting
a particular type of claim.” Agudas Chasidei Chabad of U.S.
v. Russian Fed’n, 528 F.3d 934, 940 (D.C. Cir. 2008).
Ecuador argues that the § 1605(a)(6) exception requires the
District Court to make three findings: “(1) a foreign state has
agreed to arbitrate; (2) there is an award based on that
agreement; and (3) the award is governed by a treaty signed
by the United States calling for the recognition and
enforcement of arbitral awards.” Appellant’s Br. at 23.
Chevron argues that the exception allows jurisdiction any
time a plaintiff asserts a non-frivolous claim involving an
arbitration award. Appellee’s Br. at 30-31.
For the most part, Ecuador has the better argument, and
has identified the relevant jurisdictional facts. In most
instances, the existence of an arbitration agreement is a
“purely factual predicate[] independent of the plaintiff’s
claim.” Chabad, 528 F.3d at 940. Likewise, the existence of
an award is a factual question that the District Court must
resolve in order to maintain jurisdiction. If there is no
arbitration agreement or no award to enforce, the District
Court lacks jurisdiction over the foreign state and the action
must be dismissed. 2
2
The statute does not require that the District Court determine that
the award is governed by a treaty; if the first two jurisdictional facts
are established, the District Court has jurisdiction so long as the
award “is or may be governed by a treaty.” 28 U.S.C. § 1605(a)(6)
(emphasis added). This element of the jurisdictional authorization
is thus closer to the claim-based jurisdictional test proposed by
Chevron. The distinction is irrelevant for purposes of this case, as
7
As the plaintiff, Chevron bears the initial burden of
supporting its claim that the FSIA exception applies. See id.“[T]his is only a burden of production; the burden of
persuasion rests with the foreign sovereign claiming
immunity, which must establish the absence of the factual
basis by a preponderance of the evidence.” Id. Chevron has
met its burden of production by producing the BIT, Chevron’s
notice of arbitration against Ecuador, and the tribunal’s
arbitration decision. Ecuador does not dispute the existence
of the BIT, Chevron’s notice, or the tribunal’s arbitration
decision, but instead challenges the District Court’s
conclusion that the BIT (or the combination of the BIT and
Chevron’s notice of arbitration) is an arbitration agreement
between Ecuador and Chevron.
B.
Ecuador argues that the FSIA required the District Court
to make a de novo determination of whether Ecuador’s offer
to arbitrate in the BIT encompassed Chevron’s breach of
contract claims. According to Ecuador, if Chevron’s claims
are not covered by the BIT, then Ecuador never agreed to
arbitrate with Chevron, and the District Court consequently
lacked jurisdiction. In Ecuador’s view, the arbitrability
question is therefore a jurisdictional question that must be
addressed by the District Court.
Ecuador conflates the jurisdictional standard of the FSIA
with the standard for review under the New York Convention.
For FSIA purposes, Chevron made a prima facie showing that
there was an arbitration agreement by producing the BIT and
the parties do not dispute that the New York Convention governs
arbitral awards issued pursuant to the BIT.
8
the notice of arbitration. Once Chevron made this showing,
the burden shifted to Ecuador to demonstrate by a
preponderance of the evidence that the BIT and the notice to
arbitrate did not constitute a valid arbitration agreement
between the parties. Cf. Chabad, 528 F.3d at 940. The
jurisdictional task before the District Court was to determine
whether Ecuador had sufficiently rebutted the presumption
that the BIT and Chevron’s notice of arbitration constituted an
agreement to arbitrate. 3
The Supreme Court’s recent decision in BG Group, PLC
v. Republic of Argentina, 134 S. Ct. 1198 (2014), is
instructive on this point. In BG Group, Argentina’s primary
argument was similar to Ecuador’s in the present case. By its
terms, the Bilateral Investment Treaty between the United
Kingdom and Argentina required an investor to litigate its
claims in the local court system before submitting the claims
to arbitration. 134 S. Ct. at 1204. BG Group submitted a
claim to arbitration without observing this process. The
arbitration panel concluded that Argentina had waived the
local litigation requirement and found in BG Group’s favor on
the merits. Id. at 1204-05. When BG Group sought to
confirm the award in the District Court for the District of
Columbia, the District Court deferred to the arbitrators’
3
The District Court eschewed making this determination as part of
its jurisdictional analysis. This was error. The statute requires the
District Court to satisfy itself that the party challenging immunity
has presented prima facie evidence of an agreement between the
parties and that the sovereign asserting immunity has failed to
sufficiently rebut that evidence. There is no need to remand,
however, because the District Court elsewhere found that the BIT
and the notice of arbitration together constituted an agreement
between the parties. See Chevron, 949 F. Supp. 2d at 63 (“The
Court thus finds [Chevron] had a valid agreement to arbitrate under
the BIT.”).
9
determination regarding the local litigation requirement.
Republic of Argentina v. BG Group PLC, 715 F. Supp. 2d
108, 121-22 (D.D.C. 2010). This Court reversed, holding that
“[b]ecause the Treaty provides that a precondition to
arbitration of an investor’s claim is an initial resort to a
contracting party’s court . . . the question of arbitrability is an
independent question of law for the court to decide.”
Republic of Argentina v. BG Group PLC, 665 F.3d 1363,
1371 (D.C. Cir. 2012).
The Supreme Court reversed. The Court “treat[ed] the
document . . . as if it were an ordinary contract between
private parties”—Argentina and BG Group—and concluded
that the parties had intended to allow the arbitrator to
determine whether the local litigation requirement had been
satisfied. BG Group, 134 S. Ct. at 1206 (majority op.). In
doing so, the Court implicitly rejected Argentina’s contention
that its offer to arbitrate only applied to investors who
complied with the local litigation requirement. As the Chief
Justice noted in his dissent, “[t]he majority opinion nowhere
explains when and how Argentina agreed with BG Group to
submit to arbitration. Instead, the majority seems to assume
that, in agreeing with the United Kingdom to adopt [the
arbitration provision] along with the rest of the treaty,
Argentina thereby formed an agreement with all potential
U.K. investors . . . to submit all investment-related disputes to
arbitration.” BG Group, 134 S. Ct. at 1216 (Roberts, C.J.,
dissenting).
While we are mindful of the Chief Justice’s concerns, we
agree with his interpretation of the Court’s opinion. The BIT
includes a standing offer to all potential U.S. investors to
arbitrate investment disputes, which Chevron accepted in the
manner required by the treaty. The FSIA therefore allows
federal courts to exercise jurisdiction over Ecuador in order to
10
consider an action to confirm or enforce the award. The
dispute over whether the lawsuits were “investments” for
purposes of the treaty is properly considered as part of review
under the New York Convention.
C.
Even were we to conclude that the FSIA required a de
novo determination of arbitrability, however, we would still
find that the District Court had jurisdiction. In order to
prevail on its jurisdictional argument, Ecuador would have to
demonstrate by a preponderance of the evidence that
Chevron’s suits were not “investments” within the meaning of
the BIT. This Ecuador has failed to do.
For purposes of the BIT, “‘investment’ means every kind
of investment in the territory of one Party owned or controlled
directly or indirectly by nationals or companies of the other
Party . . . and includes . . . a claim to money or a claim to
performance having economic value, and associated with an
investment.” BIT Article I.1(a)(iii), J.A. 294. Ecuador argues
that the final phrase – “and associated with an investment” –
means that a lawsuit must be associated with an investment
that existed within the effective period of the BIT in order to
qualify as an investment under the BIT. This is a misreading
of the treaty terms for two reasons.
First, Article I.3 provides that “[a]ny alteration of the
form in which assets are invested or reinvested shall not affect
their character as investment.” In conjunction with the BIT’s
non-exhaustive definition of “investment,” Article I.3
suggests that an investment continues to exist until it has been
fully wound up and all claims have been settled. Chevron’s
lawsuits were therefore continuations of its initial investment
in Ecuador and protected by the BIT.
11
Second, Article XII limits the application of the BIT “to
investments existing at the time of entry into force as well as
to investments made or acquired thereafter.” J.A. 300. The
investments referred to by this article are investments as
defined in Article I, and include “a claim to money or a claim
to performance having economic value, and associated with
an investment.” J.A. 294. Ecuador argues that the Article XII
temporal limitation applies both to the claim and to the
investment with which that claim is associated. We disagree.
In our view, Article XII applies only to “investments” as
defined by Article I, and not to the use of the term
“investments” within the definitional paragraph. A lawsuit
that existed at the time of entry into force of the BIT is
consequently an “investment” for BIT purposes so long as
that lawsuit is associated with an investment as generally
defined: “An expenditure to acquire property or assets in
order to produce revenue; the asset so acquired.” BLACK’S
LAW DICTIONARY (6th ed. 1990). Chevron’s breach of
contract lawsuits indisputably were associated with its pre-
BIT investment activities, and the lawsuits indisputably
existed when the BIT entered into force. The lawsuits
themselves were therefore “investments” within the meaning
of the treaty.
The District Court correctly determined that the BIT and
Chevron’s notice to arbitrate satisfied the jurisdictional
requirements of the FSIA. Even if the FSIA required the de
novo review of arbitrability suggested by Ecuador, however,
the District Court would still have properly exercised
jurisdiction because Ecuador failed to demonstrate by a
preponderance of the evidence that Chevron’s lawsuits were
not protected by the BIT.
12
III.
Ecuador’s arguments against confirmation of the award
under the New York Convention are largely coextensive with
its arguments related to the District Court’s jurisdiction.
There is no merit to these arguments, and the District Court
properly confirmed the award.
As recognized by the court below, “the [New York
Convention] affords the district court little discretion in
refusing or deferring enforcement of foreign arbitral awards.”
Belize Soc. Dev. Ltd. v. Gov’t of Belize, 668 F.3d 724, 727
(D.C. Cir. 2012); see also Appellee’s Brief Add. 3 (New York
Convention provision setting forth exclusive grounds on
which enforcement of an award may be refused). Ecuador
asserts two grounds on which confirmation of the award
should be denied: Articles V(1)(c) and V(2)(b) of the New
York Convention. Article V(1)(c) provides that an award
may be refused if it “deals with a difference not contemplated
by or not falling within the terms of the submission to
arbitration,” and V(2)(b) allows refusal if “the recognition or
enforcement of the award would be contrary to the public
policy” of the country in which enforcement is sought.
Ecuador’s reliance on Article V(1)(c) is misplaced. The
District Court did not need to reach the question of whether
Chevron’s lawsuits fell within the terms of submission to
arbitration because the BIT allows the arbitration tribunal to
make that determination. As discussed supra, the Supreme
Court has analyzed a similar bilateral investment treaty as if it
were a contract between the sovereign and the investor
corporation seeking to confirm an arbitral award. “Where
ordinary contracts are at issue, it is up to the parties to
determine whether a particular matter is primarily for
arbitrators or for courts to decide. If the contract is silent on
13
the matter . . . courts presume that the parties intend courts,
not arbitrators, to decide . . . disputes about ‘arbitrability.’”
BG Group, 134 S. Ct. at 1206 (internal citations omitted).
The BIT is not silent on who decides arbitrability. Article VI
of the BIT provides that the investor company may submit a
matter to arbitration “in accordance with the Arbitration Rules
of the United Nations Commission on International Trade
Law (UNCITRAL).” BIT Art. VI(3)(a)(iii), J.A. 298. Under
these rules, which the BIT incorporates by reference, “[t]he
arbitral tribunal shall have the power to rule on objections that
it has no jurisdiction, including any objections with respect to
the existence or validity of the arbitration clause,” and “shall
have the power to determine the existence or the validity of
the contract of which an arbitration clause forms a part.”
UNCITRAL Arbitration Rules, G.A. Res. 31/91 art. 21 (Dec.
15, 1976). Ecuador therefore consented to allow the arbitral
tribunal to decide issues of arbitrability—including whether
Chevron had “investments” within the meaning of the treaty.
See also Oracle America, Inc. v. Myriad Group A.G., 724
F.3d 1069, 1077 (9th Cir. 2013) (“Incorporation of the
UNCITRAL arbitration rules . . . constitutes clear and
unmistakable evidence that the parties agreed to arbitrate
arbitrability.”); Schneider v. Kingdom of Thailand, 688 F.3d
68, 72 (2d Cir. 2012) (“[A] bilateral investment treaty’s
incorporation of the . . . UNCITRAL rules [is] clear and
unmistakable evidence that the parties intended questions of
arbitrability to be decided by the arbitral panel in the first
instance.”) (internal quotation marks omitted). There was no
need for the District Court to independently determine that
Chevron’s suits satisfied the BIT’s parameters once it had
concluded that the parties had delegated this task to the
arbitrator.
Ecuador’s Article V(2)(b) arguments are similarly rooted
in the “erroneous premise” that the BIT does not apply. See
14
Appellant’s Br. at 55-56 (“Finally, the District Court erred by
failing to deny confirmation on public-policy grounds. At the
root of its incorrect analysis was the erroneous premise that
the Republic and Chevron agreed to arbitrate.”). Relying on
this premise, Ecuador identifies two aspects of American
public policy that are purportedly inconsistent with
confirmation of the award. First, Ecuador argues that “the
Award is repugnant to the policy that forum-selection clauses
in agreements between sophisticated parties will be upheld”
because Chevron and Ecuador had contractually agreed that
Chevron’s claims would be litigated in Ecuadorian courts.
Appellant’s Br. at 57-58. Second, Ecuador argues that
confirmation is inconsistent with respect for foreign
sovereignty, claiming that “the Tribunal effectively usurped
the jurisdictional authority of the Ecuadorian judiciary, the
only adjudicative body authorized to hale the Republic into
court to respond to Chevron’s lawsuits.” Appellant’s Br. at
58.
The primary flaw with the first argument is that it
misapprehends the nature of Chevron’s action. Chevron’s
breach of contract claims were brought in Ecuadorian courts,
as required by the initial investment agreement and ratified by
the 1995 settlement agreement. 4 Chevron’s arbitration action
alleged that Ecuador had unduly delayed resolution of those
4
As Chevron notes, the 1995 settlement agreement did not
expressly indicate that the claims would remain in Ecuadorian
courts: “Any and all claims, of any type . . . which are separate
from this agreement and which exist judicially between the parties,
shall continue to be heard before the authorities having the
appropriate jurisdiction.” J.A. 182. While the use of the word
“continue” indicates that the claims were to remain in Ecuadorian
courts (where they were at the time of the settlement agreement),
the language does not plainly foreclose proceedings before other
authorities.
15
claims in violation of the BIT. J.A. 813-14. The issue
initially before the arbitration panel was not whether Ecuador
had breached its contract with Chevron, but instead whether
Ecuador had breached the BIT by failing to resolve the
contract suits in a timely fashion. In signing the BIT, Ecuador
agreed to arbitration of precisely this type of action. See Art.
II(7), J.A. 297 (“Each Party shall provide effective means of
asserting claims and enforcing rights with respect to
investment, investment agreements, and investment
authorizations.”).
A similar consideration forecloses Ecuador’s claim of
jurisdictional usurpation. The Tribunal did not usurp the
authority of the Ecuadorian judiciary; Ecuador ceded that
authority, first by signing the BIT, and then by failing to
resolve Chevron’s legal actions in a timely fashion.
Contrary to Ecuador’s protestations, enforcement of the
arbitral award is fully consistent with the public policy of the
United States, most notably the “emphatic federal policy in
favor of arbitral dispute resolution,” Mitsubishi Motors Corp.
v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985).
By signing the BIT, Ecuador agreed to allow independent and
neutral arbitrators to determine whether an investor company
could take advantage of the substantive and procedural
protections in the BIT. Chevron followed the proper
procedure to request arbitration under the BIT, and the
arbitrator determined that it had jurisdiction. Four courts have
also considered and rejected Ecuador’s argument that
Chevron did not have the right to avail itself of the BIT’s
arbitration clause. Ecuador has given us no reason to
conclude that these many authorities ruled in error.
16
IV.
For the foregoing reasons, we affirm the District Court’s
confirmation of the arbitral award to Chevron.
So ordered.