Belize Social Development Ltd v. Government of Belize

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued January 16, 2015 Decided July 21, 2015
No. 14-7002
BELIZE SOCIAL DEVELOPMENT LIMITED,
APPELLEE
v.
GOVERNMENT OF BELIZE,
APPELLANT
Consolidated with 14-7003, 14-7018
Appeals from the United States District Court
for the District of Columbia
(No. 1:09-cv-02170)
Creighton R. Magid argued the cause and filed the briefs
for appellant. Marcus W. Sisk Jr. entered an appearance.
Louis B. Kimmelman argued the cause for appellee.
With him on the brief were Dana C. MacGrath and Ryan C.
Morris.
2
Before: GARLAND, Chief Judge, TATEL, Circuit Judge,
and SENTELLE, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
SENTELLE.
SENTELLE, Senior Circuit Judge: Belize Social
Development Limited (“BSDL”) petitioned the district court
to confirm an arbitration award rendered against the
government of Belize. The arbitration award arises out of the
alleged breach by Belize of a 2005 agreement between Belize
and Belize Telemedia Limited, BSDL’s predecessor in
interest. Belize had declined to participate in the arbitration
underlying the petition and took the position in the district
court and before us that the Prime Minister at the time of the
entry of the agreement lacked authority to enter either the
underlying contract or the arbitration agreement and that
therefore, the arbitration exception to the Foreign Sovereign
Immunities Act, 28 U.S.C. § 1602, et seq., does not apply, so
that Belize remains immune from this action and the courts of
the United States do not have jurisdiction over this litigation.
Because Belize had not provided support for its claim with
respect to the arbitration agreement, the district court rejected
the contention and entered judgment in favor of BSDL.
Belize Soc. Dev. Ltd. v. Gov’t of Belize, 5 F. Supp. 3d 25, 33–
34 (D.D.C. 2013). For the same reason, we affirm the
judgment of the district court.
BACKGROUND
In 2005, Belize, acting under the direction of then-Prime
Minister Said Musa, entered into an agreement styled “The
Accommodation Agreement” with Belize Telemedia Limited,
Belize’s largest private telecommunications company. Under
3
the agreement, the company contracted to purchase properties
from Belize which the country desired to sell “in order to
better accommodate the Government’s communication
needs.” Belize Soc. Dev. Ltd. v. Gov’t of Belize, 668 F.3d
724, 728 (D.C. Cir. 2012). As part of the transaction,
Telemedia was to obtain relief from tax and regulatory
burdens otherwise applicable to the company, and receive
other significant benefits. The agreement, among other
things, (1) guaranteed Telemedia a 15% rate of return on
investments, with any shortfall to be paid by Belize; (2) gave
Telemedia preferential tax treatment; (3) excluded Telemedia
from import duties; and (4) committed Belize to ensuring that
“no person other than BTL and [Speednet Communications
Limited, BTL’s competitor,] have or will have or be granted
any authority, permit or license in Belize to legally carry on,
conduct, or provide telecommunication services involving or
allowing the provision or transport of voice services.”
Government Telecommunications Accommodation
Agreement §§ 3.1, 6.1, 11.4, 11.3, September 19, 2005, Joint
Appendix 129–160. The parties also agreed to an arbitration
clause which stated:
Any dispute arising out of or in connection with this
Agreement including any question regarding its
existence, validity or termination, which cannot be
resolved amicably between the parties shall be
referred to and finally resolved by arbitration under
the London Court of International Arbitration (LCIA)
Rules which Rules are deemed to be incorporated by
reference under this Section.
Id. at § 15.2.
The administration of Prime Minister Musa lasted only
until 2008, when Prime Minister Dean Barrow took office.
4
The new prime minister renounced the Accommodation
Agreement, asserting that it was repugnant to the laws of
Belize and therefore invalid. Belize then ceased to honor the
contractual obligations as asserted by Telemedia. Telemedia
repaired to the terms of the arbitration clause and submitted
the dispute to arbitration before the LCIA in London. Belize
refused to participate in the arbitration proceedings,
contending, as it contends now, that the arbitration clause was
invalid and that the arbitrators lacked jurisdiction. On March
18, 2009, the arbitral tribunal ruled that the Accommodation
Agreement was valid and binding on Belize; that the tribunal
had jurisdiction over Telemedia’s claims; and that Belize had
breached the accommodation agreement. Belize Soc. Dev.
Ltd., 668 F.3d at 728. The arbitral tribunal granted Telemedia
declaratory relief, and awarded over 38 million Belize dollars
in damages. Id. Two days later, Telemedia assigned the
monetary portion of its award to BSDL. Id.
In November 2009, BSDL brought suit in the District
Court for the District of Columbia to confirm the arbitral
award pursuant to section 207 of the Federal Arbitration Act
(“FAA”), 9 U.S.C. § 207. Belize moved to stay confirmation
of the award pending resolution of related litigation in Belize.
The district court obliged; BSDL appealed. We reversed,
noting that under the FAA, the stay order “was not in
conformity with federal law and international commitments.”
Belize Soc. Dev. Ltd., 668 F.3d at 733. We remanded and
instructed the district court “to review and grant BSDL’s
petition to confirm the Final Award absent a finding that an
enumerated exception to enforcement . . . applie[s].” Id. On
remand, Belize argued that the district court lacked subject
matter jurisdiction over the dispute because it was entitled to
sovereign immunity under the Foreign Sovereign Immunities
Act (“FSIA”). Belize Soc. Dev. Ltd., 5 F. Supp. 3d at 32. The
district court held that jurisdiction was proper under the
5
arbitration exception to the FSIA, and granted BSDL’s
petition to confirm the award. Id. at 33. This appeal
followed.
ANALYSIS
The Foreign Sovereign Immunities Act is “the sole basis
for obtaining jurisdiction over a foreign state in the courts of
[the United States].” Argentine Republic v. Amerada Hess
Shipping Corp., 488 U.S. 428, 443 (1989). Its terms are
absolute: Unless an enumerated exception applies, courts of
this country lack jurisdiction over claims against a foreign
nation. Saudi Arabia v. Nelson, 507 US. 349, 355 (1993).
BSDL claims the arbitration exception applies to this case.
The arbitration exception provides:
A foreign state shall not be immune from the
jurisdiction of courts of the United States or of the
States in any case . . . 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, whether contractual or
not, concerning a subject matter capable of settlement
by arbitration under the laws of the United States, 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.
28 U.S.C. § 1605(a)(6).
6
Where a plaintiff has asserted jurisdiction under the FSIA
and the defendant foreign state has asserted “the jurisdictional
defense of immunity,” the defendant state “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). Belize makes two arguments as to why the
arbitration exception does not apply.
First, Belize argues that the arbitration exception to
sovereign immunity does not apply because there was no
“agreement made by the foreign state.” 28 U.S.C.
§ 1605(a)(6). Belize syllogizes as follows: The Prime
Minister lacks actual authority to bind the sovereign in an
unconstitutional agreement; the Accommodation Agreement
violates the Constitution and laws of Belize; therefore, the
Prime Minister lacked authority to bind Belize in the
Accommodation Agreement. Pet. Br. 9–10. Belize concludes
that because the Prime Minister lacked actual authority to
execute the Accommodation Agreement on behalf of Belize,
the agreement is void ab initio, and there is no “agreement
made by the foreign state.” Id. at 19, 22.
Essential to Belize’s analysis is the assumption that if the
former Prime Minister lacked actual authority to execute the
Accommodation Agreement, then every provision in the
agreement, including the arbitration provision, is void.
Because this assumption is incorrect, Belize’s argument fails.
The language of the FSIA arbitration exception makes
clear that the agreement to arbitrate is severable from the
underlying contract. The exception only requires a valid
“agreement . . . to submit to arbitration,” 28 U.S.C.
§ 1605(a)(6). It also distinguishes between the underlying
“legal relationship” and the agreement to arbitrate disputes
7
arising from that relationship. Id. As we have previously
noted, the agreement to arbitrate is “separate from the
obligations the parties owe to each other under the remainder
of the contract.” Marra v. Papandreou, 216 F.3d 1119, 1123,
1125 (D.C. Cir. 2000). It is, for all intents and purposes, “a
distinct contract in and of itself.” Id.; see Prima Paint Corp.
v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–04 (1967)
(distinguishing between the agreement to arbitrate and the
underlying contract). In order to succeed in its claim that
there was no “agreement made by the foreign state . . . to
submit to arbitration,” 28 U.S.C. § 1605(a)(6), Belize must
show that the Prime Minister lacked authority to enter into the
arbitration agreement. This Belize has failed to do.
In the district court, Belize argued that the Prime Minister
lacked authority to enter into the Accommodation Agreement.
See, e.g., Respondent’s Preliminary Response to Petition to
Confirm Arbitration Award at 30, Belize Soc. Dev. Ltd. v.
Gov’t of Belize, No. 1:09-cv-02170 (D.D.C. Aug. 8, 2014)
(“[T]he Accommodation Agreements are null and void, ab
initio, because the Prime Minister had no authority to enter
into an agreement that would exempt [Telemedia] from its tax
liabilities under Belize law.”). Belize repeated the same
argument in this Court. See, e.g., Pet. Br. 9 (“The
Accommodation Agreements are void ab initio because the
former Prime Minister lacked actual authority to execute
them.”). But Belize presents nothing beyond its bare
allegation in support of its argument that the Prime Minister
lacked authority to enter the agreement to arbitrate. Without
such support, Belize failed to carry its burden of establishing
that BSDL’s allegations do not bring this case within the
FSIA’s arbitration exception.
More briefly put, this case turns on the proposition that
Belize entered two agreements: the Accommodation
8
Agreement and the Agreement to Submit to Arbitration, albeit
the two were entered simultaneously. The argument of Belize
that the Accommodation Agreement was beyond the authority
of the Prime Minister might provide a defense if we were
considering this controversy de novo on its merits. However,
in order to bring that argument before us, Belize must first
establish that the arbitration provision of the contract is void,
so that we would not be bound to honor the arbitral tribunal’s
determinations. We cannot determine the merits of the
defense if the arbitration clause applies. Since Belize has not
negated the clause, we do not reach the merits defense.
This brings us to Belize’s second line of defense. Belize
argues that the arbitration exception does not apply because
the award is not “governed by a treaty or other international
agreement . . . calling for the recognition and enforcement of
arbitral awards.” 28 U.S.C. § 1605(a)(6). Specifically, Belize
contends that the relevant treaty, the New York Convention,
does not govern the award because the award does not arise
from a commercial transaction, as required by the treaty, but
from a governmental transaction.
The Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (also known as the New York
Convention) is a multilateral treaty providing for “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
(“New York Convention”), art. I(1), 21 U.S.T. 2517 (1970).
For most signatories, the New York Convention applies to all
private arbitral agreements, regardless of the subject matter.
Restatement (Third) of Foreign Relations Law § 487 cmt. f
(1987). The United States, however, made a declaration,
authorized by Article I(3) of the Convention, that the
9
Convention would be applicable “only to differences arising
out of legal relationships whether contractual or not, which
are considered commercial under the national law of the State
making such declaration.” New York Convention, 21 U.S.T.
2517. The United States implemented the Convention in the
Federal Arbitration Act, 9 U.S.C. § 201 et seq. See id. at
§ 202 (applying the Convention to an award that arises “out of
a legal relationship, whether contractual or not, which is
considered as commercial”).
The New York Convention, as codified in the FAA, does
not define the term “commercial.” “When a statute uses [a
term of art], Congress intended it to have its established
meaning.” McDermott Int’l, Inc. v. Wilander, 498 U.S. 337,
342 (1991). In the context of international arbitration,
“commercial” refers to “matters or relationships, whether
contractual or not, that arise out of or in connection with
commerce.” Restatement (Third) of U.S. Law of Int’l Comm.
Arbitration § 1-1 (2012); see Restatement (Third) of Foreign
Relations Law § 487 cmt. f (1987) (“That a government is a
party to a transaction does not destroy its commercial
character; indeed, the fact that an agreement to arbitrate is in
the contract between a government and a private person may
confirm its commercial character . . . .”). As the Comment to
the Restatement on International Commercial Arbitration
explains, “A matter or relationship may be commercial even
though it does not arise out of or relate to a contract, so long
as it has a connection with commerce, whether or not that
commerce has a nexus with the United States.” Restatement
(Third) of U.S. Law of Int’l Comm. Arbitration § 1-1 cmt. e;
see Island Territory of Curacao v. Solitron Devices, Inc., 356
F. Supp. 1, 13 (S.D.N.Y. 1973) (“[I]t seems clear that the full
scope of ‘commerce’ and ‘foreign commerce,’ as those terms
have been broadly interpreted, is available for arbitral
agreements and awards.” (quoting Leonard V. Quigley,
10
Convention on Foreign Arbitral Awards, 58 A.B.A. J. 821,
823 (1972))). Using the Restatement’s definition of
“commercial,” the New York Convention applies to the
Accommodation Agreement.
The text of the FAA’s codification of the New York
Convention is consistent with this conclusion. While the New
York Convention, as codified in the FAA, does not expressly
define “commercial,” it does expressly encompass any
“transaction, contract, or agreement described in” 9 U.S.C.
§ 2. 9 U.S.C. § 202. Section 2 in turn includes contracts
“evidencing a transaction involving commerce,” 9 U.S.C. § 2
– a term the Supreme Court has interpreted “as the functional
equivalent of the more familiar term ‘affecting commerce’ –
words of art that ordinarily signal the broadest permissible
exercise of Congress’ Commerce Clause power,” Citizens
Bank v. Alafabco, Inc., 539 U.S. 52, 56 (2003). The
Accommodation Agreement falls within that term’s broad
compass.
The Agreement involves the sale of real property in
exchange for certain accommodations, a transaction with a
connection to commerce. See Holzer v. Mondadori, No. 12
Civ. 5234, 2013 WL 1104269, at *5 (S.D.N.Y. Mar. 14,
2013) (noting that the sale of property is commercial under
the New York Convention). The provision of
telecommunication services has an even more obvious
connection to commerce. Indeed, in today’s technological
age, telecommunication services are often a “crucial segment
of the economy.” AT&T Corp. v. Iowa Utils. Bd., 525 U.S.
366, 397 (1999). The taxes Belize levies against a company
also have a connection with commerce, see Commonwealth
Edison Co. v. Montana, 453 U.S. 609, 614–15 (1981) (noting
the impact taxes have on commerce), as do the duties Belize
charges (or forgoes charging). We thus conclude that the
11
Accommodation Agreement is commercial and is governed
by the New York Convention.
Belize seeks to avoid this result by arguing we should
adopt the definition of “commercial” articulated by the
Supreme Court in Republic of Argentina v. Weltover, Inc.,
504 U.S. 607 (1992). In that case, the Supreme Court, in
examining the scope of the FSIA’s “commercial activity”
exception, 28 U.S.C. § 1605(a)(2), held that a foreign state
engages in commercial activities when it acts in the manner of
a private player within the market. Weltover, 504 U.S. at 614.
The Court reasoned that the FSIA “largely codifies the so-
called ‘restrictive’ theory of foreign sovereign immunity”;
that the word “commercial” was a “term of art”; and that
Congress therefore intended the word to have “the meaning
generally attached to that term under the restrictive theory at
the time the statute was enacted,” i.e., distinguishing between
“state sovereign acts, on the one hand, and state commercial
and private acts, on the other.” Id. at 612–13. In this case,
Belize argues that in granting Telemedia certain tax and duty
exemptions, it exercised “powers peculiar to sovereigns” as
opposed to “powers that can also be exercised by private
citizens,” id. at 614, and thus its actions were not commercial.
Belize’s reliance on Weltover is misplaced. Unlike with
the FSIA, Congress was not codifying the restrictive theory of
foreign sovereign immunity when it ratified and implemented
the New York Convention. Rather, the treaty concerns
international arbitration. We thus recognize that: (1) the
Convention’s purpose was to “encourage the recognition and
enforcement of commercial arbitration agreements in
international contracts,” TermoRio S.A. E.S.P. v. Electranta
S.P., 487 F.3d 928, 933 (D.C. Cir. 2007); (2) the word
“commercial” is a “term of art”; and (3) in implementing the
Convention, Congress intended that word to have the meaning
12
generally attached to that term in the international commercial
arbitration context. As we discussed above, “commercial” in
the context of international arbitration refers to matters which
have a connection to commerce. Belize’s argument to the
contrary will not sell.
Belize raises several other arguments for why we should
dismiss this action, including forum non conveniens,
international comity, and lack of personal jurisdiction, as well
as specific defenses under the Convention. These arguments
were adequately discussed and rejected by the district court,
and none warrant further exposition by this Court.
CONCLUSION
For the reasons stated above, the judgment below is
affirmed.
It is so ordered.