Chevron Corporation v. Republic of Ecuador ( 2013 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
CHEVRON CORPORATION and
TEXACO PETROLEUM COMPANY,
Petitioners,
v. Civil Action No. 12-1247 (JEB)
REPUBLIC OF ECUADOR,
Respondent.
MEMORANDUM OPINION
Petitioners Chevron Corporation and Texaco Petroleum Company filed this action to
confirm an award issued by an international tribunal under 9 U.S.C. § 207 and the 1958
Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as
the New York Convention. Respondent Republic of Ecuador seeks to deny such confirmation on
several bases. First, Ecuador argues that this Court lacks subject-matter jurisdiction because the
case does not meet the requirements of the arbitration exception to the Foreign Sovereign
Immunities Act. Second, it contends that confirmation must be denied under the New York
Convention because the Award was beyond the scope of the submission to arbitration and is
contrary to United States public policy. Finally, it maintains that this Court should, at a
minimum, stay proceedings in this matter while Ecuador attempts to have the Award set aside by
courts in the Netherlands, where the Award was rendered. Disagreeing on all fronts, the Court
will deny Ecuador’s request and grant Chevron’s Petition to Confirm the Award.
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I. Background
According to the Petition, Chevron and Texaco (together “Chevron”) entered into a
contract with Ecuador in 1973, permitting Chevron to exploit oil reserves in Ecuador’s Amazon
region, on the condition that Chevron provide a percentage of its crude-oil production at a
reduced price to meet Ecuadorian domestic-consumption needs. See Pet., ¶¶ 11-12. The
agreement was amended in 1977 and expired in June 1992. Id., ¶¶ 11, 16. As Chevron began
winding up its work in Ecuador in 1991, it filed seven breach-of-contract cases there against the
Ecuadorian government, seeking over $553 million in damages for various breaches of the 1973
and 1977 agreements. Id., ¶ 17. These disputes largely concerned allegations that Ecuador had
overstated its domestic oil-consumption needs, and appropriated more crude oil than it was
entitled to acquire at the reduced price. Id. ¶ 17. The lawsuits remained pending in Ecuadorian
courts until being incorporated into the arbitration at issue in this case in 2006. Id., ¶ 21.
Meanwhile, in 1997, the U.S.-Ecuador Bilateral Investment Treaty (BIT) entered into
force. Id., ¶ 18; Treaty Between the United States of America and the Republic of Ecuador
Concerning the Encouragement and Reciprocal Protection of Investments, U.S.-Ecuador, Aug.
27, 1993, S. Treaty Doc. No. 103-15. The BIT generally provides certain legal protections to
American and Ecuadorian investors when they engage in foreign direct investment in the
reciprocal country. It specifically provides, inter alia, that disputes against one of the parties
arising out of such investments may be resolved by resort to binding arbitration upon request of a
company or national of the other party. Id., art. VI(3). After more than a decade had elapsed
without a determination of its claims pending in the Ecuadorian courts, Chevron filed a Notice of
Arbitration in 2006 alleging that Ecuador had breached the BIT by allowing its claims to
languish in those courts without a resolution. See Pet., ¶¶ 21, 24-25.
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A three-member arbitral Tribunal based at The Hague conducted several rounds of
hearings concerning both its jurisdiction to hear the case and the merits of the dispute. Id., ¶¶
10, 22. The Tribunal issued an Interim Award in December 2008 finding it had jurisdiction to
hear the case, see Declaration of Edward G. Kehoe, Exh. 3 (Interim Award), a Partial Award on
the Merits in March 2010 finding that the Ecuadorian courts’ undue delay constituted a breach of
the BIT, see id., Exh. 4 (Partial Award on the Merits), and a Final Award in August 2011
concerning damages. See id., Exh. 5 (Final Award on the Merits). Ecuador petitioned the
District Court of The Hague to set aside the Award in July 2010, but the court denied that request
in May 2012. See Pet., ¶ 34. Ecuador subsequently appealed the Dutch District Court’s
judgment, and its appeal remains pending. See Resp. Opp. to Pet. (ECF No. 18) at 3, 9.
Chevron now seeks an order confirming the Final Award under the New York
Convention. Ecuador, not surprisingly, objects.
II. Analysis
Ecuador raises three arguments in an effort to derail confirmation: the Court lacks
subject-matter jurisdiction under the Foreign Sovereign Immunities Act, confirmation should be
denied under the New York Convention, and a stay pending appeal in the Netherlands is
appropriate. The Court addresses each in turn.
A. Foreign Sovereign Immunities Act
Ecuador first argues that the Foreign Sovereign Immunities Act, 28 U.S.C. § 1604,
deprives the Court of subject-matter jurisdiction. See Resp. Opp. to Pet. at 10. The FSIA is “the
sole basis for obtaining jurisdiction over a foreign state in our courts.” Argentine Republic v.
Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989). Under the statute, “a foreign state is
presumptively immune from the jurisdiction of the United States courts[] unless a specified
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exception applies.” Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Because “subject matter
jurisdiction in any such action depends on the existence of one of the specified exceptions . . .
[a]t the threshold of every action in a District Court against a foreign state . . . the court must
satisfy itself that one of the exceptions applies.” Verlinden B.V. v. Central Bank of Nigeria, 461
U.S. 480, 493-94 (1983). Notably, “the defendant bears the burden of proving that the plaintiff’s
allegations do not bring its case within a statutory exception to immunity.” Phoenix Consulting,
Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000) (citing Transamerican S.S. Corp. v.
Somali Democratic Republic, 767 F.2d 998, 1002 (D.C. Cir. 1985)).
The FSIA provides an exception to foreign sovereign immunity for actions to confirm
certain arbitration awards. See 28 U.S.C. § 1605(a)(6). Specifically, foreign sovereigns are not
immune from suits
in which the action is brought[] either to enforce an agreement
made by the foreign state with or for the benefit of a private party
to submit to arbitration all or any differences which have arisen or
which may arise between the parties with respect to a defined legal
relationship . . . 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 or other international agreement in force for
the United States calling for the recognition and enforcement of
arbitral awards.
Id. (emphasis added). Chevron asserts that its Petition falls under this exception because the
Final Award was made pursuant to the BIT and is governed by the 1958 Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York
Convention, implemented at 9 U.S.C. §§ 201 et seq. See Pet., ¶¶ 4-5. This is correct.
First, the Award’s own language indicates it was rendered pursuant to the BIT, an
agreement that provides for arbitration. See Interim Award at 1, 39 (referring to the Award as
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“under the BIT” and describing the BIT as one of the “principal relevant legal provisions” in the
dispute).
Second, the Award is clearly governed by the New York Convention, which controls “the
recognition and enforcement of arbitral awards made in the territory of a State other than the
State where the recognition and enforcement of such awards are sought.” Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958,
art. I.1, 21 U.S.T. 2517. Awards are enforceable in the courts of any signatory so long as “‘the
place of the award . . . is in the territory of a party to the Convention.’” Creighton Ltd. v.
Government of the State of Qatar, 181 F.3d 118, 121 (D.C. Cir. 1999) (quoting Restatement
(Third) of Foreign Relations Law § 471 cmt. b (1987)). Because the arbitration in this matter
was conducted at The Hague and the Netherlands is a party to the New York Convention, the
Final Award here is governed by the Convention. See Pet., ¶ 10; U.S. Dept. of State, Treaties in
Force: A List of Treaties and Other International Agreements of the United States in Force on
January 1, 2007, § 2 at 12, available at http://www.state.gov/documents/organization/89668.pdf.
Under the law of this Circuit, moreover, the arbitration exception in § 1605(a)(6) “by its
terms” applies to actions to confirm arbitration awards under the New York Convention.
Creighton, 181 F.3d at 123. “Indeed, it has been said with authority that the New York
Convention ‘is exactly the sort of treaty Congress intended to include in the arbitration
exception.’” Id. at 123-24 (quoting Cargill Int’l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012,
1018 (2d Cir. 1993)). The Court thus finds that Chevron has satisfied the requirements of the
FSIA’s arbitration exception.
Ecuador nonetheless raises a novel argument in contesting the applicability of the
exception here. It contends that it never consented to arbitrate the underlying dispute in this
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matter, meaning the award was not rendered “pursuant to . . . an agreement to arbitrate,” and that
the Court must satisfy itself of the arbitrability of the underlying dispute before finding subject-
matter jurisdiction over this enforcement proceeding. See Resp. Opp. to Pet. at 10-11 (citing 28
U.S.C. § 1605(a)(6)). Ecuador, however, points to no authority – nor can the Court identify any
– suggesting that the Court must conduct such an independent, de novo determination of the
arbitrability of a dispute to satisfy the FSIA’s arbitration exception.
Such an argument appears to be an attempt by Ecuador to get two bites at the apple of the
merits of its dispute with Chevron, by seeking to have this Court separately determine the
arbitrability of the underlying dispute under both the FSIA and the New York Convention. The
inquiry Ecuador suggests runs counter to the clear teaching of this Circuit on the purpose and
role of the FSIA. The FSIA is a jurisdictional statute that “‘speak[s] to the power of the court
rather than to the rights and obligations of the parties.’” Creighton, 181 F.3d at 124 (quoting
Landgraf v. USI Film Prods., 511 U.S. 244, 274 (1994)). Likewise, Ҥ 1605(a)(6) does not affect
the contractual right of the parties to arbitration but only the tribunal that may hear a dispute
concerning enforcement of an arbitral award.” Id. (citing McGee v. International Life Ins. Co.,
355 U.S. 220, 224 (1957)). Inquiring into the merits of the enforcement dispute – that is, the
arbitrability of the underlying claims – would involve an inquiry into the “contractual rights of
the parties to arbitration” and would thus be beyond the reach of the FSIA’s cabined
jurisdictional inquiry.
In contrast to the unprecedented merits-based review Ecuador seeks, the Court’s
approach here is consistent with those of numerous other federal courts, which have engaged in
only these two jurisdictional inquiries – namely, whether the award was made pursuant to an
appropriate arbitration agreement with a foreign state and whether the award “is or may be”
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governed by a relevant recognition treaty. See, e.g., Blue Ridge Investments, LLC v. Republic
of Argentina, 902 F. Supp. 2d 367, 375 (S.D.N.Y. 2012) (“Here, Blue Ridge instituted the instant
action ‘to confirm an award made pursuant to [Argentina’s] agreement to arbitrate.’ The Award
is governed by the ICSID Convention, ‘a treaty or other international agreement in force for the
United States calling for the recognition and enforcement of arbitral awards. Argentina and the
United States are both signatories to the Convention. . . . Accordingly, this Court has subject
matter jurisdiction under . . . Section 1605(a)(6).”) (alterations in original); Continental Casualty
Co. v. Argentine Republic, 893 F. Supp. 2d 747, 751 n.11 (E.D. Va. 2012) (collecting cases); In
the Matter of the Arbitration Between Monegasque de Reassurances S.A.M. v. Nak Naftogaz of
Ukraine, 311 F.3d 488, 494-95 (2d Cir. 2002) (finding jurisdiction under the FSIA in proceeding
to confirm arbitration award under the New York Convention); G.E. Transp. v. Republic of
Albania, 693 F. Supp. 2d 132, 136 (D.D.C. 2010) (same); Agrocomplect, AD v. Republic of
Iraq, 524 F. Supp. 2d 16, 33-34 (D.D.C. 2007) (denying jurisdiction because Iraq, where
arbitration took place, “was not a signatory to the New York Convention or (to the best of the
Court’s knowledge) any other ‘treaty or international agreement in force for the United States
calling for the recognition and enforcement of arbitral awards’ when it entered into the contract
with the plaintiff”) (quoting 28 U.S.C. § 1605(a)(6)).
In any event, the Court’s analysis in Section III.B, infra, affirms – albeit under a
somewhat deferential standard of review – that Ecuador did consent to arbitration. Respondent’s
FSIA argument would thus be unlikely to prevail even if reviewed on its merits. Indeed, in any
dispute where a respondent argues under the New York Convention that the award was beyond
the arbitrator’s power, such merits inquiry will always occur. See New York Convention, art.
V(1)(c) (Court may deny confirmation where award beyond scope of submission to arbitration).
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There is thus no prejudice to either party that would be incurred by a Court’s not engaging in the
same analysis twice.
B. New York Convention
The Federal Arbitration Act, 9 U.S.C. §§ 201-208, codifies the New York Convention.
Pursuant to the Convention, a district court “shall confirm the [arbitral] award unless it finds one
of the grounds for refusal or deferral of recognition or enforcement of the award specified in the
said Convention.” 9 U.S.C. § 207. “Consistent with the ‘emphatic federal policy in favor of
arbitral dispute resolution’ recognized by the Supreme Court . . . the FAA affords the district
court little discretion in refusing or deferring enforcement of foreign arbitral awards.” Belize
Social Development Ltd. v. Government of Belize, 668 F.3d 724, 727 (D.C. Cir. 2012) (quoting
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)). Courts
“may refuse to enforce the award only on the grounds explicitly set forth in Article V of the
Convention.” TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 935 (D.C. Cir. 2007)
(quoting Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997))
(quotation marks omitted); see also Int’l Trading & Indus. Inv. Co. v. Dyncorp Aerospace Tech.,
763 F. Supp. 2d 12, 19 (D.D.C. 2011) (collecting cases). Because “the New York Convention
provides only several narrow circumstances when a court may deny confirmation of an arbitral
award, confirmation proceedings are generally summary in nature.” Int’l Trading, 763 F. Supp.
2d at 20 (citing Zeiler v. Deitsch, 500 F.3d 157, 167 (2d Cir. 2007)). The party resisting
confirmation bears the heavy burden of establishing that one of the grounds for denying
confirmation in Article V applies. See New York Convention, art. V; Imperial Ethiopian Gov’t
v. Baruch-Foster Corp., 535 F.2d 334, 336 (5th Cir. 1976); see also Ottley v. Schwartzberg, 819
8
F.2d 373, 376 (2d Cir. 1987) (“[T]he showing required to avoid summary confirmation is
high.”).
In contending that the Award here should not be enforced, Ecuador relies on two of the
grounds for denying confirmation set forth in Article V. See Resp. Opp. to Pet. at 23-25. First,
It invokes Article V(1)(c), which allows a court to deny confirmation where “[t]he award deals
with a difference . . . not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration.” Second, Ecuador argues
that confirmation may be denied under Article V(2)(b), which allows for denial of confirmation
where “the recognition or enforcement of the award would be contrary to the public policy” of
the country where confirmation is sought. Neither ground is availing.
1. Article V(1)(c): Arbitrability
Ecuador first asserts that confirmation may be denied under Article V(1)(c) because it
“never agreed – with the United States or with Chevron – to arbitrate the claims in the pending
litigation or Chevron’s Treaty claim of undue delay concerning that litigation.” See Resp. Opp.
to Pet. at 9. It contends that since the Tribunal’s decision on the arbitrability of the underlying
dispute was incorrect, the Final Award was “beyond the scope of the submission to arbitration.”
See New York Convention, art. V(1)(c). To reach such a conclusion, Ecuador suggests that this
Court must engage in an “independent determination” of the Tribunal’s jurisdiction to resolve
the underlying dispute. See Resp. Reply and Opp. at 5-8. Chevron disagrees, claiming instead
that because the parties “clearly and unmistakably” agreed that the Tribunal should decide the
arbitrability of the dispute, this Court’s review of that decision should be highly deferential, a
standard the Tribunal’s reasoned decision entirely satisfies. See Pet. Opp. and Mot. (ECF No.
20) at 15. Chevron has the better of this debate.
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Ecuador maintains that this Court must conduct a de novo review of the Tribunal’s
decision on jurisdiction because, in the ordinary case, “the question of arbitrability . . . is
undeniably an issue for judicial determination.” AT&T Tech., Inc. v. Commc’n Workers of
Am., 475 U.S. 643, 649 (1986); see also Resp. Opp. to Pet. at 12 (citing Granite Rock Co. v. Int’l
Bhd. of Teamsters, 130 S. Ct. 2847, 2855 (2010), and First Options of Chicago, Inc. v. Kaplan,
514 U.S. 938, 943 (1995)). Ecuador, however, mischaracterizes the holdings of these cases,
none of which provides that arbitrability is an issue for judicial determination in all
circumstances. For example, while the AT&T Technologies court noted that, ordinarily,
arbitrability is an issue for judicial determination, it held that where “the parties clearly and
unmistakably provide otherwise” – e.g., where they have submitted the arbitrability of the
dispute to the arbitrators – the arbitrator determines the arbitrability of the dispute in the first
instance. See 475 U.S. at 649; see also, e.g., First Options, 514 U.S. at 943 (“We agree with
First Options, therefore, that a court must defer to an arbitrator's arbitrability decision when the
parties submitted that matter to arbitration.”). Granite Rock, by contrast, concerned a case where
there was no dispute about who should determine arbitrability. See 130 S. Ct. at 2856 (noting
that on those facts, “[t]he parties agree[d] that it was proper for the District Court to decide
whether their ratification dispute was arbitrable”).
In cases where the parties have clearly and unmistakably delegated the question of
arbitrability to the arbitrator, a court may review that arbitrability decision, but it “should give
considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow
circumstances.” First Options, 514 U.S. at 943. Indeed, at least one federal circuit has explicitly
rejected the position Ecuador takes here, holding that where the parties “clearly and
unmistakably agreed to arbitrate issues of arbitrability,” the party resisting confirmation of the
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award “is not entitled to an independent judicial redetermination of that same question.”
Schneider v. Kingdom of Thailand, 688 F.3d 68, 74 (2d Cir. 2012). To the extent that the parties
here have “clearly and unmistakably” agreed to arbitrate arbitrability, then, this Court must give
substantial deference to that decision. In a confirmation proceeding where arbitrability has been
clearly and unmistakably delegated to the arbitrator, “the [New York] Convention . . . does not
sanction [a Court’s] second-guessing the arbitrator’s construction of the parties’ agreement.”
Parsons & Whittemore Overseas Co., Inc. v. Societe Generale De L’Industrie Du Papier
(RATKA), 508 F.2d 969, 977 (2d Cir. 1974).
In deciding this question, the Court first considers whether an agreement to arbitrate
exists at all, then analyzes whether such agreement intended the Tribunal to determine questions
of arbitrability, and ends with a review of the Tribunal’s decision on that issue in this case.
a. Existence of an Agreement to Arbitrate
To begin, Chevron asserts that the “plain language” of the U.S.-Ecuador BIT
demonstrates Ecuador’s consent to arbitrate this dispute. See Pet. Opp. and Mot. at 14. In its
view, Article VI of the BIT constitutes “a standing offer to arbitrate any ‘investment dispute’
brought by a U.S. ‘national or company.’” See id. at 14-15 (citing U.S.-Ecuador BIT, art. VI §
4(b)). This position is bolstered by two recent Second Circuit decisions interpreting bilateral
investment treaties as creating written agreements to arbitrate for purposes of the New York
Convention on facts similar to these. In a case involving both the U.S.-Ecuador BIT and a
dispute between our same parties Chevron and Ecuador, the Second Circuit explained:
The BIT provides that “an ‘agreement in writing’ for purposes of
Article II of the . . . New York Convention” is created when a
foreign company gives notice in writing to a BIT signatory and
submits an investment dispute between the parties to binding
arbitration in accordance with Article VI of the Treaty. All that is
necessary to form an agreement to arbitrate is for one party to be a
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BIT signatory and the other to consent to arbitration of an
investment dispute in accordance with the Treaty’s terms. In
effect, Ecuador’s accession to the Treaty constitutes a standing
offer to arbitrate disputes covered by the Treaty; a foreign
investor’s written demand for arbitration completes the “agreement
in writing” to submit the dispute to arbitration.
Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 392-93 (2d Cir. 2011) (emphasis added)
(internal citations omitted). Likewise, when interpreting the Germany-Thailand BIT, the same
court held that “[t]he existence of an arbitration agreement [between the investor and Thailand]
is beyond dispute. Thailand, ‘by signing the [treaty], and [the investor] by consenting to
arbitration, have created a separate binding agreement to arbitrate.’” Schneider, 688 F.3d at 71-
72 (quoting Chevron, 638 F.3d at 392). Although these decisions are not binding on this Court,
given the Second Circuit’s sound reasoning regarding directly comparable facts, the Court sees
no reason to deviate from this approach here. This is, furthermore, a point Ecuador does not
truly contest.
Because the BIT constitutes Ecuador’s “standing offer” to arbitrate, all Chevron must
show is that it was a U.S. “company or national” that submitted an “investment dispute” in order
for the Court to find it had a binding arbitration agreement with Ecuador. No one disputes that
Chevron is a U.S. company or national. The BIT defines an “investment dispute” to include “an
alleged breach of any right conferred or created by this Treaty with respect to an investment.”
See U.S. Ecuador BIT, art. VI § 1. Because Chevron alleged that “Ecuador breached Article
II(7) of the BIT through the undue delay of the Ecuadorian courts” in deciding Chevron’s
breach-of-contract cases regarding its initial investment in Ecuador, see Pet., ¶ 27, it properly
requested arbitration of an “alleged breach of [a] right conferred by [the BIT] with respect to an
investment.” See Section III.B.1.c, infra (discussing definition of investment). The Court thus
finds it had a valid agreement to arbitrate under the BIT.
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b. Who Determines Arbitrability?
Having determined that the parties here entered into a valid agreement to arbitrate, the
Court must now inquire whether that agreement “clearly and unmistakably” shows that they
intended the Tribunal to decide questions of arbitrability. In this case, the U.S.-Ecuador BIT,
which forms the basis of the agreement to arbitrate, provides that arbitration may be conducted
“in accordance with the Arbitration Rules of the United Nations Commission on International
Trade Law (UNCITRAL).” See U.S.-Ecuador BIT, art. VI § 3(a)(iii). Article 21 of the
UNCITRAL rules requires that the 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 agreement.” UNCITRAL Arbitration Rules, art. 21, ¶ 1, G.A. Res. 31/98, U.N.
Doc. A/RES/31/98 (Dec. 15, 1976). In this Circuit, clear and binding precedent dictates that in
the context of a bilateral investment treaty, “incorporation of the UNCITRAL Rules provides
clear[] and unmistakabl[e] evidence[] that the parties intended for the arbitrator to decide
questions of arbitrability.” Republic of Argentina v. BG Group PLC, 665 F.3d 1363, 1371 (D.C.
Cir. 2012) (alterations in original) (internal quotation marks omitted). Indeed, the D.C. Circuit is
not alone in this regard; the Second and Ninth Circuits have both reached the same conclusion.
See Chevron, 638 F.3d at 394; Wal-Mart Stores, Inc. v. PT Multipolar Corp., No. 98-16952,
1999 WL 1079625, at *2 (9th Cir. Nov. 30, 1999). And, indeed, Ecuador wisely yields to the
unequivocal authority on this issue. See Resp. Reply and Opp. (ECF No. 26) at 6. The Court,
accordingly, finds that the parties here clearly and unmistakably agreed to have the arbitrator
resolve issues of arbitrability.
c. Deferential Review of Tribunal’s Decision
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Having so found, the Court may now engage in only deferential review of the Tribunal’s
decision, granting “considerable leeway to the arbitrator.” First Options, 514 U.S. at 943. At the
outset, it is worth noting that the “beyond the scope” defense to confirmation “should be
construed narrowly” and that the party resisting confirmation on such basis “must . . . overcome
a powerful presumption that the arbitral body acted within its powers.” Parsons, 508 F.2d at 976.
Indeed, such limited review is consistent with “the basic purposes of arbitration: to resolve
disputes speedily and to avoid the expense and delay of extended court proceedings.” Fed.
Commerce & Nav. Co. v. Kanematsu-Gosho, Ltd., 457 F.2d 387, 389 (2d Cir. 1972); see also
Rich v. Spartis, 516 F.3d 75, 81 (2d Cir. 2008) (arbitration awards subject to very limited review
“in order to avoid undermining the twin goals of arbitration”).
Unfortunately, the precise nature of the limited review contemplated by First Options is
not clear from the cases that follow. See Schneider, 688 F.3d at 74 (expressing “no opinion on
the precise standard for [deferential] review”). Ecuador, for example, contends that “the court
should consider the arbitrators’ reasoning [and i]f it does not hold up under scrutiny, it should be
rejected,” see Resp. Reply and Opp. at 8, but it offers no authority for this position.
The Court need not determine exactly what standard of deference to employ, as even
under a very mildly deferential standard, the Tribunal’s decision appears well reasoned and
comprehensive. In no way is it so erroneous, unjust, or unclear that this Court would be
empowered to set it aside.
The Tribunal here consisted of three learned arbitrators, one chosen by Chevron, one
chosen by Ecuador, and one chosen by the first two arbitrators with the consent of the parties.
See Interim Award at 13. No one contends that the arbitrators were biased, inexperienced, or
otherwise inadequate. The Tribunal held eleven days of hearings, four of which were solely
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devoted to jurisdiction. See id. at 25-26. It ultimately produced a 140-page opinion concerning
arbitrability alone and addressing eight potential jurisdictional issues. See id. at 63-138.
Ecuador thus cannot claim that the Award should be set aside for the Tribunal’s failure to
thoroughly engage with the issues or the parties’ arguments.
Looking beyond the comprehensiveness of the Tribunal’s work to its reasoning, the Court
again finds no reason for reversal. At arbitration, Ecuador contended that the underlying breach-
of-contract and unreasonable-delay disputes were nonarbitrable because they were not covered
by the U.S.-Ecuador BIT, arguing variously that the BIT did not cover investments that had
“expired” prior to its entry into force and that, in any case, the surviving breach-of-contract
claims could not constitute “investments” under the Treaty. See id., ¶¶ 59, 79. The Tribunal
disagreed. It noted that the BIT defines “investments” to include “a claim to money or a claim to
performance having economic value, and associated with an investment.” Id., ¶ 179. The
Tribunal “agreed with [Chevron] that . . . [the underlying lawsuits] concern the liquidation and
settlement of claims relating to [Chevron’s initial investment in Ecuador] and, therefore, form
part of that investment.” Id., ¶ 180. It further observed that treaty language “giv[ing] a further
non-exhaustive list of forms that an investment may take” and “provid[ing] that ‘[a]ny alteration
of the form in which assets are invested or reinvested shall not affect their character as [an]
investment’” bolstered its conclusion that “once an investment is established, it continues to exist
and be protected [by the BIT] until its ultimate ‘disposal’ has been completed – that is, until it
has been wound up.” Id., ¶¶ 181, 183. It then concluded that Chevron’s “investments have not
ceased to exist: their lawsuits continued their original investment through the entry into force of
the BIT and to the date of commencement of this arbitration.” Id., ¶ 184.
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The Court can find nothing objectionable about this conclusion, which is based on the
plain text of the BIT. Although the Tribunal discusses other jurisdictional arguments throughout
the rest of the Interim Award, this analysis is alone sufficient to survive even the more searching
form of review Ecuador contends is applicable here. Indeed, if the Court were asked the same
question in the first instance, such plain-meaning analysis would likely end the matter, as it does
in the interpretation of contracts, judgments, and statutes. See, e.g., Travelers Indem. Co. v.
Bailey, 557 U.S. 137, 150 (2009) (“[W]here the plain terms of a court order unambiguously
apply . . . they are entitled to their effect.”); Connecticut Nat’l Bank v. Germain, 503 U.S. 249,
254 (1992) (“[W]hen the words of a statute are unambiguous . . . this first canon is also the last:
‘judicial inquiry is complete.’”); In re Fitzgerald Marine & Repair, Inc., 619 F.3d 851, 859 (8th
Cir. 2010) (“Where the written instrument is so worded that it can be given a certain definite
legal meaning or interpretation, then it is not ambiguous, and this Court will construe [it
accordingly].”) (quotation and citations omitted).
Because the Treaty plainly states that an “investment” includes “a claim to money . . .
associated with an investment” and dictates that “an investment . . . continues to exist . . . until it
has been wound up,” the Tribunal’s reasoning that Chevron’s breach-of-contract lawsuits were
unexpired “investments” for purposes of the BIT more than “holds up under scrutiny.” As the
Tribunal’s arbitrability decision survives the deferential review required in this circumstance, the
Court cannot find that the Final Award is “beyond the scope” of the submission to arbitration and
will not deny confirmation on this basis.
2. Article V(2): Public Policy
Ecuador also argues that confirmation must be denied because the award contravenes the
public policy of the United States. See Resp. Opp. to Pet. at 24-25. The public-policy exception
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under the New York Convention is construed extremely narrowly and applied “only where
enforcement would violate the forum state’s most basic notions of morality and justice.”
Parsons, 508 F.2d at 974 (citing Restatement (Second) of Conflict of Laws § 117, cmt. c (1971));
see also Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v.
Cubic Defense Systems, Inc., 665 F.3d 1091, 1097 (9th Cir. 2011); TermoRio S.A. E.S.P., 487
F.3d at 938; Admart AG v. Stephen & Mary Birch Found., Inc., 457 F.3d 302, 308 (3d Cir.
2006); Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara,
364 F.3d 274, 306 (5th Cir. 2004); Slaney v. Int’l Amateur Athletic Fed’n, 244 F.3d 580, 593
(7th Cir. 2001); M&C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 851 n.2 (6th Cir.
1996). The “provision was not meant to enshrine the vagaries of international politics under the
rubric of ‘public policy,’” and it does not provide that awards that might contravene U.S.
interests may be resisted on such grounds. Parsons, 508 F.2d at 974. Likewise, “[a]lthough this
defense is frequently raised, it ‘has rarely been successful.’” Cubic Defense Systems, 665 F.3d
at 1097 (quoting Andrew M. Campbell, Annotation, Refusal to Enforce Foreign Arbitration
Awards on Public Policy Grounds, 144 A.L.R. Fed. 481 (1998 & supp.)).
Ecuador points to no such “basic notion of morality and justice” that would be offended
by the enforcement of the Award here; in fact, its public-policy argument is primarily a
rehashing of its position that the Award was beyond the scope of the submission to arbitration. It
also contends that enforcement would violate “strong public policies respecting foreign
sovereignty and the autonomy of ongoing judicial proceedings.” See Resp. Reply and Opp. at
16. Neither argument meets the extraordinarily high threshold required by the public-policy
defense.
17
As to Ecuador’s first argument – that the Award was beyond the scope – both the
Tribunal and this Court have separately found that Ecuador did consent to arbitrate this dispute.
In fact, it could just as easily be argued that enforcing the Award here furthers the strong U.S.
policy of “ensur[i]ng that private arbitration agreements are enforced according to their terms.”
AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1748 (2011) (citation and quotation marks
omitted); New York Convention, art. II. Indeed, analysis of a proposed public-policy defense
“begins with the strong public policy favoring confirmation of foreign arbitration awards,” Cubic
Defense Systems, 665 F.3d at 1098, because “[t]he goal of the [New York] Convention, and the
principal purpose underlying American adoption and implementation of it, was to encourage the
recognition and enforcement of commercial arbitration agreements in international contracts and
to unify the standards by which agreements to arbitrate are observed and arbitral awards are
enforced in the signatory countries.” Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15
(1974).
Ecuador’s second contention – that enforcing the Award would flout its sovereignty – is
similarly unavailing. Ecuador argues that enforcing the Award would sanction the forcible
removal of pending litigation from Ecuadorian courts, something it suggests the U.S. would
never tolerate. Such a characterization is erroneous.
Ecuador and the U.S. willingly entered into the BIT, in which they agreed to “provide
effective means of asserting claims and enforcing rights with respect to investment, investment
agreements, and investment authorizations.” U.S.-Ecuador BIT, art. II(7). The present dispute
found its way to arbitration because Chevron alleged a breach of this clause – namely, that
Ecuador had failed to provide “effective means of . . . enforcing rights” in its court system by
allowing Chevron’s claims to languish there for fifteen years.
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In such an instance, the BIT explicitly states that disputes “arising out of . . . an alleged
breach of any right conferred or created by this treaty” may be resolved through “courts or
administrative tribunals” and through “binding arbitration.” See id., art. VI(1-3). The BIT leaves
the choice of dispute-resolution method up to the national or company bringing the claim, and it
provides that such awards shall be enforceable under the New York Convention. Id. In this
sense, the BIT’s provision for the arbitration of claims that a signatory has breached its treaty
obligations operates as a backstop against the failure of the court systems of either of the
signatory nations, and it has played that role appropriately here.
Indeed, it strains credulity to argue that both these sovereign nations would have agreed
to such a choice of dispute-resolution processes if they had anticipated it would lead to results
that would “violate . . . [their] most basic notions of morality and justice.” Parsons, 508 F.2d at
974. Given that the Court has found there was a valid agreement to arbitrate between the parties
formed under the BIT, the Court cannot now say that enforcing it through the precise means
contemplated by the treaty would contravene the strong public policy of the United States. As a
result, confirmation may not be denied on this basis.
To the extent Ecuador also claims that the Tribunal’s remedy was improper, such remedy
clearly does not violate U.S. public policy. In this case, the Tribunal found that Ecuador had
breached its obligations under the BIT, and it concluded that the appropriate damage measure for
“an international wrong is . . . the comparison of the victim’s actual situation to that which would
have prevailed had the illegal acts not been committed.” See Partial Award, ¶ 374. Applying
this principle to Ecuador’s breach of the BIT, it found that because
the Claimants’ alleged primary “loss” in this case is the chance for
a judgment by the Ecuadorian courts, the Tribunal must ask itself
how a competent, fair, and impartial Ecuadorian court would have
resolved [Chevron]’s claims. The Tribunal must step into the
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shoes and mindset of an Ecuadorian judge and come to a
conclusion about what the proper outcome of the cases should have
been.
Id., ¶ 375.
The Court offers no opinion on whether the Tribunal’s proposed remedy was erroneous
as an interpretation of the appropriate damages measure in an international arbitration, but even
if it were, “a mere error of law would not . . . be sufficient grounds to refuse recognition of the
award.” National Oil Corp. v. Libyan Sun Oil Co., 733 F. Supp. 800, 819 n.32 (D. Del. 1990);
see also Karaha Bodas Co., 364 F.3d at 306 (“Erroneous legal reasoning or misapplication of law
is generally not a violation of public policy within the meaning of the New York Convention.”);
Brandeis Intsel Limited v. Calabrian Chemicals Corp., 656 F. Supp. 160, 165 (S.D.N.Y. 1987)
(“‘[M]anifest disregard’ of law, whatever the phrase may mean, does not rise to the level of
contravening ‘public policy,’ as that phrase is used in Article V of the Convention.”) (emphasis
in original). Based on the limited nature of the Court’s review here, it could not conclude that
the Tribunal’s proposed remedy was so egregious that it violated U.S. public policy and should
be vacated.
Finding that Ecuador has not carried its burden to show that any of the bases for denying
confirmation in the New York Convention applies to the Award here, the Court must grant
Chevron’s Petition and confirm the Award.
C. Ecuador’s Request for a Stay
Finally, Ecuador argues that “the Court should defer a final decision on the merits of
Chevron’s petition pending resolution of the ongoing set-aside proceedings in the Hague,” as
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permitted by Article VI of the New York Convention. See Resp. Opp. to Pet. at 26. Under the
Convention, district courts do have discretion to stay proceedings where “a parallel proceeding is
ongoing in the originating country and there is a possibility that the award will be set aside.”
Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310, 317 (2d Cir. 1998). Noting that
“the adjournment of enforcement proceedings impedes the goals of arbitration – the expeditious
resolution of disputes and the avoidance of protracted and expensive litigation,” the Europcar
court found that “a stay of confirmation should not be lightly granted,” and it identified a number
of factors district courts should consider in evaluating a request for a stay of proceedings. Id. at
317. These factors include:
(1) The general objectives of arbitration . . .;
(2) The status of the foreign proceedings and the estimated time
for those proceedings to be resolved;
(3) Whether the award sought to be enforced will receive greater
scrutiny in the foreign proceedings under a less deferential
standard of review;
(4) The characteristics of the foreign proceedings including (i)
whether they were brought . . . to set the award aside (which
would tend to weigh in favor of enforcement) . . . and (iv)
whether they were initiated under circumstances indicating an
intent to hinder or delay resolution of the dispute;
(5) A balance of the possible hardships to the parties . . .; and
(6) Any other circumstance that could tend to shift the balance in
favor of or against adjournment . . . .
Id. at 317-318. “Because the primary goal of the Convention is to facilitate the recognition and
enforcement of arbitral awards, the first and second factors on the list should weigh more heavily
in the district court’s determination.” Id. at 318. Notably, Ecuador’s initial request for a stay
makes no mention of the Europcar factors, and its Second Opposition makes only passing
reference to them. The Court, finding that the balance of factors weighs against staying the
proceedings, will deny Ecuador’s request.
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The first factor, the general objectives of arbitration, weighs strongly in favor of
confirmation. The BIT, the UNCITRAL Rules, and the New York Convention all require
immediate satisfaction of arbitral awards. Chevron submitted its Notice of Arbitration in this
matter more than six years ago, a delay that surely does not constitute an “expeditious
resolution” of the dispute, which originated in the early 1990s. See G.E. Transport, 693 F. Supp.
2d at 139 (finding that four-year delay “plainly weigh[ed] in favor of confirmation rather than
adjournment”).
Likewise, the second factor, the status of the foreign proceedings, weighs in favor of
immediate confirmation: although the Dutch proceeding is ongoing, the District Court of the
Hague issued a decision denying Ecuador’s petition to set the award aside more than a year ago,
and the appeal will likely not be resolved until late 2013 or early 2014. See Pet., ¶ 34; Kehoe
Decl., Exh. 6 (Certified Judgment of the District Court of the Hague).
The third factor, whether the award will receive greater scrutiny in foreign proceedings,
is a closer case. According to Chevron’s expert, Jacob M.K.P. Cornegoor, who represents
Chevron in the Dutch proceeding, “[T]he [Dutch] District Court reviewed the question whether a
valid arbitration agreement was formed de novo,” but reviewed the question of whether the
dispute concerned an investment validly covered by the BIT as “one for arbitrators to consider
and their answer should be reviewed under a more restrictive standard by the court.” Declaration
of Jacob M.K.P. Cornegoor, ¶ 4; Certified Judgment, ¶¶ 4.10-4.11. This standard is not so much
more exacting than the one applied here that it weighs strongly against confirmation, and,
indeed, the fact that the Dutch District Court has already denied the motion to set aside suggests
that to the extent the standard is any more searching, it has not helped Ecuador in its attempt to
resist confirmation.
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The fourth factor does not carry much force either way. Although the parties dispute
whether the vacatur proceedings are an attempt to “hinder or delay resolution of the dispute,” the
Court cannot say that they are so obviously either legitimate or vexatious that this factor should
sway its analysis here. The fact that the proceedings were initiated to vacate the Award, rather
than confirm it, however, does weigh against a stay.
The fifth factor, the balance of hardships, also counsels in favor of immediate
confirmation. As Chevron notes, this dispute is more than twenty years old, and the arbitration
itself began more than six years ago. Although Chevron will be entitled to prejudgment interest,
which would continue to accrue in the event of a stay, that is not enough to offset its continued
inability to obtain enforcement of its award. After such an extensive delay, the balance of
hardships – and, indeed, the interests of justice – strongly favor immediate confirmation.
Neither side presents any other significant circumstance that should be considered as an
additional factor. Because the balance of the Europcar factors greatly supports immediate
confirmation, the Court will deny Ecuador’s request for a stay.
III. Conclusion
For the aforementioned reasons, the Court will grant Chevron’s Petition and order
confirmation of the Award. A separate Order consistent with this Opinion will be issued this
day.
/s/ James E. Boasberg
JAMES E. BOASBERG
United States District Judge
Date: June 6, 2013
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