AO Techsnabexport v. Globe Nuclear Services & Supply GNSS, Ltd.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-2064
AO TECHSNABEXPORT, a legal entity organized and existing
under the laws of the Russian Federation,
Plaintiff - Appellee,
v.
GLOBE NUCLEAR SERVICES AND SUPPLY GNSS, LIMITED, d/b/a
Global Nuclear Services and Supply, Limited, a Delaware
corporation,
Defendant – Appellant.
Appeal from the United States District Court for the District of
Maryland, at Greenbelt. Alexander Williams, Jr., District
Judge. (8:08-cv-01521-AW)
Argued: September 22, 2010 Decided: December 15, 2010
Before TRAXLER, Chief Judge, and DAVIS and KEENAN, Circuit
Judges.
Affirmed by unpublished opinion. Judge Keenan wrote the
opinion, in which Chief Judge Traxler and Judge Davis joined.
ARGUED: Andrew K. Fletcher, PEPPER & HAMILTON, LLP, Pittsburgh,
Pennsylvania, for Appellant. Kevin McNulty, GIBBONS PC, Newark,
New Jersey, for Appellee. ON BRIEF: Richard M. Weibley, PEPPER
& HAMILTON, LLP, Pittsburgh, Pennsylvania; Matthew H. Adler,
PEPPER & HAMILTON, LLP, Philadelphia, Pennsylvania, for
Appellant. Craig M. Palik, MCNAMEE, HOSEA, JERNIGAN, KIM,
GREENAN & LYNCH, PA, Greenbelt, Maryland; David E. De Lorenzi,
GIBBONS PC, Newark, New Jersey, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
2
KEENAN, Circuit Judge:
Globe Nuclear Services and Supply, Limited (Globe)
challenges the district court’s judgment confirming the final
award of a Swedish arbitration tribunal in favor of AO
Techsnabexport (Tenex). Globe’s appeal presents three issues:
1) whether the arbitration tribunal improperly considered
“witness statements” of individuals who were not available for
cross-examination; 2) whether the tribunal exceeded its
permissible scope of review by considering matters related to
Russian criminal law; and 3) whether the tribunal lacked
authority to enter the final award after previously deciding
certain questions in the partial award. Upon consideration of
these issues, we affirm the district court’s judgment confirming
the final award.
I.
Tenex is a joint stock company organized under the laws of
the Russian Federation, and was appointed by an agency of the
Russian Federation to direct the management of Russian nuclear
materials. Globe is a corporation established under Delaware
law that maintains its headquarters in Maryland. Globe buys,
sells, and trades various forms of uranium used in the
production of nuclear fuel.
3
In January 2000, Tenex and Globe entered into a contract
for the sale of uranium hexafluoride (uranium), in which Globe
agreed to purchase uranium from Tenex from 2001 through 2013
(the contract). The contract contained an arbitration clause,
which provided that “any [] dispute, controversy or claim
arising out of or relating to [the contract] or the breach,
termination or invalidity thereof” shall be settled by
arbitration, and that the contract shall be governed by the laws
of Sweden.
In November 2003, Tenex informed Globe that Tenex would no
longer sell uranium to Globe, effective January 2004, because
further sales were “inimical to the interests of the Russian
Federation.” After Tenex’s announcement, Globe submitted a
request for arbitration. A panel of three arbitrators (the
tribunal) was appointed to conduct the proceedings in Sweden.
In its amended claim for relief, Globe asserted that Tenex
breached the contract, and that Globe was entitled to more than
$944 million in damages plus costs. The parties held a pre-
hearing conference in Arlanda, Sweden, and agreed upon a set of
procedural rules to govern the arbitration proceedings (the
Arlanda Rules). The Arlanda Rules provided, in part, that each
witness must submit a written statement, and must testify before
the tribunal and be available for cross-examination.
4
Before the arbitration hearings began, Tenex informed the
tribunal that indictments had been filed in the United States
charging a former Russian Federation government official and a
Globe executive with using money stolen from the United States
government to purchase shares of Globe. The General
Prosecutor’s Office of the Russian Federation (the Russian
Prosecutor General) began a related criminal investigation (the
Russian criminal investigation) of several individuals allegedly
involved in a conspiracy to gain control of Globe and to defraud
the Russian Federation. Tenex informed the tribunal that the
Russian criminal investigation might affect Tenex’s defense in
the arbitration proceedings and requested that the record remain
open to receive new evidence that may be revealed by the Russian
criminal investigation. Globe opposed this request for several
reasons, including that the Russian criminal investigation was
irrelevant to the issues before the tribunal.
In October 2005, the tribunal conducted a procedural
hearing to determine to what extent the Russian criminal
investigation should affect the arbitration proceedings. At
that hearing, Tenex asserted that the Russian criminal
investigation revealed that before Tenex and Globe entered into
the contract, a group of individuals, including a Globe
executive, engaged in a fraudulent scheme to obtain a
controlling interest in Globe in the corporate name of TKST,
5
Inc. (TKST). Tenex asserted that these individuals (the alleged
TKST conspirators) misrepresented to Tenex that TKST was acting
in the interests of Tenex and the Russian Federation, when TKST
actually served to benefit the alleged TKST conspirators. Tenex
asserted that these facts rendered the contract inequitable and
therefore invalid under Section 33 of the Swedish Contracts Act.
As applicable to this case, Section 33 of the Swedish Contracts
Act provides that an otherwise valid contract will not be
enforced when one party has knowledge that the circumstances
leading to the contract’s formation are inequitable.
In November 2005, the tribunal issued a schedule of
hearings. That schedule reflected the tribunal’s decision to
consider the breach of contract issue in the initial phase of
hearings, and to determine damages, if necessary, in a second
phase of hearings. The tribunal stated that it would “later
decide whether and, if so, to what extent new evidence, which
may come up in the ongoing criminal investigations” would be
allowed. The tribunal concluded that if it decided to allow
such new evidence, then the tribunal would conduct a third phase
of hearings to consider the validity of the contract.
In August 2006, after conducting the first phase of
hearings, the tribunal issued a partial award in favor of Globe,
based on the tribunal’s conclusion that Tenex breached the
contract. In that award, the tribunal rejected four independent
6
grounds of defense asserted by Tenex. The tribunal proceeded to
conduct the second phase of hearings to determine damages, but
deferred its ruling on that issue.
In December 2006, Tenex submitted 460 new exhibits and a
brief addressing the validity of the contract. Those 460
exhibits included transcripts documenting interviews between the
Russian Prosecutor General and several individuals regarding, in
part, TKST’s purchase of Globe shares. Globe objected to the
tribunal’s consideration of those 460 exhibits on the basis that
the tribunal did not have authority to review matters involving
Russian criminal law. Globe reasserted this objection several
times throughout the arbitration proceedings but raised no other
objections regarding the transcripts from the Russian Prosecutor
General.
The tribunal accepted the new evidence and proceeded to
conduct the third phase of hearings to consider the validity of
the contract. At the close of those hearings, Globe renewed its
objection to the tribunal’s consideration of criminal matters.
In its final award, the tribunal ruled in favor of Tenex,
holding that the contract was invalid under § 33 of the Swedish
Contracts Act. The tribunal awarded Tenex $5 million plus
interest to compensate Tenex for its attorneys’ fees and costs,
and dismissed Globe’s claims.
7
The tribunal concluded in the final award that Tenex
assisted TKST in acquiring a majority share of Globe because
Tenex was led to believe that the Russian Federation owned and
controlled TKST. The tribunal determined, however, that TKST
actually was acting in the interests of the alleged TKST
conspirators. The tribunal concluded that Globe was aware of
this circumstance when the parties entered the contract and
that, therefore, the contract could not be enforced equitably.
Also in its final award, the tribunal addressed Globe’s
objection to the tribunal’s consideration of the evidence
obtained from the Russian criminal investigation. The tribunal
stated that it permissibly could “take into account such facts
that also may constitute a criminal offence or, as an incidental
question, decide whether a certain act or omission constitutes
an offence, and consider the civil aspects thereof.”
Tenex filed a complaint in the district court seeking
confirmation of the final award. The district court had
jurisdiction to consider the complaint under the Federal
Arbitration Act, which incorporates the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, June 10,
1958, 21 U.S.T. 2517 (the Convention). See 9 U.S.C. §§ 203,
207. Globe filed pleadings opposing Tenex’s requested relief
and also filed a motion to confirm the tribunal’s partial award.
8
After conducting a hearing, the district court entered an
order confirming the final award in favor of Tenex and denying
Globe’s motion to confirm the partial award. On appeal, Globe
asserts that because the tribunal committed several errors
relating to its final award, the district court should have
confirmed the partial award instead.
II.
The scope of judicial review of an arbitration award is
“among the narrowest known at law.” Three S. Del., Inc. v.
Dataquick Info. Sys., Inc., 492 F.3d 520, 527 (4th Cir.
2007)(quoting Apex Plumbing Supply, Inc. v. U.S. Supply Co.,
Inc., 142 F.3d 188, 193 (4th Cir. 1998)). We have explained
that expansive judicial scrutiny of such awards would undermine
important benefits of arbitration, such as avoiding the delay
and expense associated with litigation. Id. Therefore, a court
considering a complaint seeking confirmation of an arbitration
award may determine only whether the arbitrators acted within
the scope of their authority, and may not consider whether the
arbitrators acted correctly or reasonably. Id. (citing Remmey
v. PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir. 1994)).
We review a district court’s confirmation of an arbitration
award de novo. Raymond James Fin. Servs., Inc. v. Bishop, 596
9
F.3d 183, 190 (4th Cir. 2010). The district court’s findings of
fact are reviewed for clear error. Id.In order for a reviewing court to vacate a foreign
arbitration award, the moving party must establish one of the
grounds for refusal specified in the Convention. 9 U.S.C.
§ 207; see Three S. Del., 492 F.3d at 527. Article V of the
Convention sets forth several bases for refusal, including the
following grounds relevant to this appeal:
(1)(b) The party against whom the award is invoked was
not given proper notice of the appointment of the
arbitrator . . . or was otherwise unable to present
his case; or
(1)(c) The award deals with a difference not
contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on
matters beyond the scope of the submission to
arbitration. . . ; or
(1)(d) The composition of the arbitral authority or
the arbitral procedure was not in accordance with the
agreement of the parties, or, failing such agreement,
was not in accordance with the law of the country
where the arbitration took place. . . ; or
(2)(b) The recognition or enforcement of the award
would be contrary to the public policy of that
country.
21 U.S.T. at 2520.
A.
Globe argues that the district court erred in confirming
the final award, because the tribunal improperly considered
transcripts from the Russian Prosecutor General documenting
interviews conducted with various individuals. Globe contends
10
that these transcripts constituted “witness statements” under
the Arlanda Rules and, thus, that Tenex was required to make the
individuals referenced in the transcripts available for cross-
examination. Globe asserts that by considering these
transcripts, the tribunal violated the governing procedural
rules established by the parties, a ground for refusal of an
arbitration award in Article V(1)(d) of the Convention, and
denied Globe the opportunity to “present its case” and cross-
examine witnesses, a separate ground for refusal in Article
V(1)(b) of the Convention.
We conclude that Globe waived this argument by failing to
raise it during the arbitration proceedings. The district court
found that Globe did not object during the arbitration
proceedings to the tribunal’s consideration of the transcripts
on the ground that they constituted “witness statements” under
the Arlanda Rules. The record before us supports the district
court’s finding and shows that Globe posed only “blanket”
objections to the tribunal’s consideration of the 460 exhibits
at issue. Globe objected to those exhibits numerous times
during the proceedings on the grounds that the Russian criminal
investigation was irrelevant to the arbitration proceedings, and
that the tribunal lacked authority to consider criminal matters.
Globe did not raise any objection during the arbitration
proceedings about its inability to cross-examine the individuals
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who made the alleged “witness statements,” or argue that the
tribunal’s consideration of the transcripts would violate the
Arlanda Rules. Therefore, we will not consider the merits of
Globe’s argument on this issue, because it was raised for the
first time in the district court. See Kreiter v. Lufthansa
German Airlines, Inc., 558 F.2d 966, 968 (9th Cir. 1977)(defects
in proceedings prior to or during arbitration may be waived by
party’s acquiescence); Order of Ry. Conductors v. Clinchfield
R.R. Co., 407 F.2d 985, 988 (6th Cir. 1969)(same).
B.
Globe next argues that the district court erred in
confirming the final award because, in that award, the tribunal
improperly engaged in an assessment of Russian criminal law and
“considered the rights and interests” of individuals other than
the parties to the contract. According to Globe, the tribunal
reached conclusions in its final award regarding the question
whether the alleged TKST conspirators held stock in Globe
through a “secret joint venture” and deceived Russian officials
about the existence of this venture, and whether the contract
was executed to “funnel profits” from Tenex to Globe and
ultimately to the alleged TKST conspirators. Globe argues that
in reaching these conclusions, the tribunal exceeded the scope
of its review permitted under the arbitration clause, a ground
for refusal set forth in Article V(1)(c) of the Convention.
12
Globe maintains that this scope of review was limited to an
application of Swedish law to the rights of the parties to the
contract.
Globe also argues that because the final award contained
“criminal findings,” the tribunal “mimicked” a Russian criminal
court in violation of the public policy interest in protecting
the integrity of international arbitration, a ground for refusal
of an arbitration award set forth in Article V(2)(b) of the
Convention. We disagree with Globe’s arguments.
The tribunal’s authority under the plain language of the
arbitration clause broadly provides that “any [] dispute,
controversy or claim arising out of or relating to [the
contract] or the breach, termination or invalidity thereof”
shall be settled by arbitration (emphasis added). Therefore,
the tribunal was permitted to consider the alleged criminal acts
of various individuals to the extent that those acts related to
the issue of the contract’s validity under § 33 of the Swedish
Contracts Act, a defense asserted by Tenex.
The tribunal determined in its final award, based in part
on evidence obtained from the Russian criminal investigation,
that the alleged TKST conspirators knowingly concealed from
Tenex the true nature of TKST’s ownership and interests. This
conclusion served as the basis for the tribunal’s ruling that
the contract was inequitable and, therefore, was invalid.
13
The tribunal’s conclusion, however, did not constitute an
“assessment” of criminal law, nor did the tribunal attempt to
hold any individual or entity criminally liable in any respect.
Additionally, the final award does not contain citation to any
principles of Russian criminal law nor does it include any
application of such legal principles. Therefore, we hold that
the tribunal, in considering evidence from the Russian criminal
investigation, did not exceed the scope of its authority in the
arbitration clause, within the meaning of Article V(1)(c) of the
Convention, and did not violate the public policy interest in
protecting the integrity of international arbitration, within
the meaning of Article V(2)(b) of the Convention.
C.
Finally, Globe argues that the district court erred in
confirming the final award because, in that award, the tribunal
reconsidered matters already resolved conclusively in the
partial award. Globe contends that during the first phase of
the hearings, Tenex presented evidence and argument addressing
whether the alleged TKST conspirators engaged in unethical and
fraudulent conduct affecting the negotiation of the contract.
Globe further contends that the tribunal dismissed these
allegations in the partial award, stating that the grounds
“which Tenex has invoked as its defense. . . do not relieve
Tenex from its contractual liability.” Accordingly, Globe
14
asserts that the tribunal exceeded the scope of its authority,
within the meaning of Article V(1)(c), when the tribunal
reconsidered Tenex’s previously-asserted defense in determining
the final award. Globe thus maintains that the partial award
completely disposed of all claims submitted to the tribunal by
the parties, and requests that we direct the district court to
confirm the partial award. We disagree with Globe’s arguments,
and decline to order confirmation of the partial award.
Arbitrators complete their function and lose their
authority to act after making a final determination on a matter.
Trade & Transport, Inc. v. Natural Petroleum Charterers, Inc.,
931 F.2d 191, 195 (2d Cir. 1991); Colonial Penn Ins. Co. v.
Omaha Indem. Co., 943 F.2d 327, 331 (3d Cir. 1991). This
principle, known as the doctrine of functus officio, prevents an
arbitrator from reexamining the merits of a final award. Trade
& Transport, 931 F.3d at 195; Colonial Penn Ins., 943 F.2d at
331-32.
An award is final in nature when the arbitrators intend to
include in the award their complete determination of all claims
submitted for arbitration. Hart Surgical, Inc. v. UltraCision,
Inc., 244 F.3d 231, 233 (1st Cir. 2001); Anderson v. Norfolk &
Western Ry. Co., 773 F.2d 880, 883 (7th Cir. 1985); Michaels v.
Mariforum Shipping, S.A., 624 F.2d 411, 413-14 (2d Cir. 1980).
Nevertheless, an interim arbitration award that finally and
15
definitively disposes of a separate, independent claim may be
confirmed in the absence of a final award. Island Creek Coal
Sales Co. v. City of Gainesville, 729 F.2d 1046, 1049 (6th Cir.
1984).
In the present case, the tribunal issued a schedule of
hearings, which provided that the issues of breach of contract
and potential damages would be addressed during the first two
phases of hearings. The schedule also established that if the
tribunal later decided to allow additional evidence, the
tribunal would consider the issue of contract validity in a
third phase of hearings.
While a court ordinarily might consider the validity of a
contract before considering whether a party breached that
contract, the district court correctly observed that the unusual
procedure in this case was warranted based on the potentially-
relevant Russian criminal investigation. Moreover, the
tribunal’s schedule of hearings explained that the tribunal
explicitly reserved consideration of the issue of the contract’s
validity for the third phase of hearings.
The record demonstrates that the tribunal followed its
announced schedule, and did not address in the partial award
Tenex’s defense that the contract was invalid under § 33 of the
Swedish Contracts Act. The tribunal considered and rejected in
the partial award other independent grounds of defense raised by
16
Tenex as reasons for its termination of the contract. Because
the partial and the final awards resolved different legal
issues, the tribunal was not prohibited in the third phase of
hearings from considering the same facts it previously had
considered in determining its partial award.
We conclude that the partial award did not definitively
dispose of any severable claim or constitute a final
determination of the issues presented by the parties. Thus, the
partial award was rendered moot by the tribunal’s conclusion in
the final award that the contract was not enforceable. See Hart
Surgical, 244 F.3d at 233; Anderson, 773 F.2d at 883; Michaels,
624 F.2d at 413-14. Accordingly, we hold that the tribunal did
not violate the doctrine of functus officio, and that the
district court did not err in declining to affirm the partial
award. See Trade & Transport, 931 F.3d at 195; Colonial Penn
Ins., 943 F.2d at 331-32.
For these reasons, we affirm the district court’s judgment
confirming the final arbitration award.
AFFIRMED
17