Mesa Power Group, LLC v. Government of Canada

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
MESA POWER GROUP, LLC,
Petitioner,
v. Civil Action No. 16-1101 (JDB)
GOVERNMENT OF CANADA,
Respondent.
MEMORANDUM OPINION
This is a dispute over enforcement of an arbitration award. Mesa Power Group, LLC
(“Mesa”), an energy company, believes that the government of Canada violated the North
American Free Trade Agreement in how it awarded various renewable energy contracts in Ontario.
An arbitration panel disagreed. Mesa now petitions this Court to vacate that award; Canada
counter-petitions for enforcement of the award. Given a federal court’s narrow power to review
the substance of arbitration awards, the Court will deny Mesa’s petition to vacate and grant
Canada’s counter-petition to enforce the award. Canada also argues that Mesa’s petition is
frivolous and in bad faith, and therefore requests that this Court award it attorney’s fees. The Court
will deny that request.
BACKGROUND
In 2009, the government of the Canadian province of Ontario launched a program designed
to encourage renewable energy, known as the Feed-in-Tariff (FIT) program. Mesa Power Grp.,
LLC v. Gov’t of Canada, Case No. 2012-17, Final Award, ¶ 13 (Perm. Ct. Arb., March 24, 2016),
Ex. 1 to Resp.’s Br. [ECF No. 22-2] (hereinafter “Award”). Mesa is an energy company that made
significant investment in the production of renewable energy in the region with the hope of being
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awarded a contract through the FIT program. Pet.’s Br. [ECF No. 1-1] at 5. After Ontario
announced the FIT program, it entered into a separate contract, outside of the FIT program, to
provide renewable energy to the same electrical grid. Award ¶¶ 38–39. This contract, the Green
Energy Investment Agreement (GEIA) was with two Korean companies known as the Korean
Consortium. Id.
Mesa believes that when Ontario announced the FIT program, it pledged to award all of
the electric grid capacity through FIT, and that Ontario’s decision to enter the GEIA reneged on
this pledge. Pet.’s Br. at 5–6. Mesa also believes that the GEIA contained fewer requirements of
investors than the FIT program did. Id. Mesa contends that these unfair practices amount to a
violation of NAFTA, which, broadly speaking, requires signatory nations to treat investors fairly.
Id. at 6–9.
Mesa asserted these claims through arbitration, as provided for in NAFTA Article 1116, in
October of 2011. Award ¶ 207; North American Free Trade Agreement, Can.-Mex.-U.S., art.
1116, Dec. 17, 1992, 32 I.L.M. 605, 640 (1993) (“NAFTA”). Specifically, Mesa argued that
Canada violated several articles of NAFTA Chapter 11. See Award ¶ 208. First and foremost,
Mesa claimed that Canada violated Article 1105(1)’s requirement that signatory nations treat
investors from another signatory nation “in accordance with international law, including fair and
equitable treatment.” NAFTA Art. 1105(1); Award ¶ 208. Mesa also claimed that Canada
improperly imposed domestic content requirements in violation of Article 1106, and that Canada
treated other investors more favorably in violation of Articles 1102 and 1103. Award ¶ 208.
NAFTA provides that arbitration proceedings are governed by NAFTA itself and the 1976
rules of the United Nations Commission on International Trade Law (UNCITRAL Rules). See
NAFTA Art. 1120(2). A tribunal of three arbitrators was duly constituted pursuant to these rules.
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It reviewed extensive briefing, received factual and expert evidence, and held an oral hearing on
October 26–31, 2014. Award ¶¶ 43–180 (evidence), ¶ 181 (oral hearing). The tribunal also
received post-hearing briefs, id. ¶ 186, and briefs from the governments of the United States and
Mexico, id. ¶¶ 192–204.
On March 24, 2016, the tribunal issued its award. It determined that the FIT program was
“procurement” by a government (namely, Canada) as defined by Article 1108, and therefore the
requirements of Articles 1102, 1103, and 1106 did not apply. Id. ¶ 465 (“The Tribunal holds that
the FIT program constitutes procurement by the Government of Ontario . . . .”); see also id. ¶¶
403–466 (providing analysis); ¶ 335 (regarding Mesa’s claim under Article 1106). The tribunal
therefore did not consider Mesa’s claims under those articles. It did consider Mesa’s Article 1105
claim, however, and ultimately determined that Canada did not violate that provision. Id. ¶ 682.
It also determined that Canada did not enter into the GEIA agreement in secret, or after promising
to award all of the grid capacity through FIT. Id. ¶ 582. The tribunal in fact found that Mesa was
aware that the Korean Consortium had the right to reserve a certain amount of the grid capacity
before Mesa made any investments in the region. Id. The tribunal, after finding for Canada on all
claims, awarded the costs and fees of arbitration to Canada. Specifically, it ordered payment of
CAD 1,116,000 for the cost of arbitration, and CAD 1,832,701, representing 30% of Canada’s
costs of engaging in arbitration. Id. ¶ 706.
One arbitrator, Judge Charles N. Brower, concurred in part and dissented in part. Award
(Brower, J., concurring in part and dissenting in part), Ex. 2 to Pet.’s Br. [ECF No. 1-3]. With
respect to Article 1105, he agreed that the tribunal stated the proper standard, but would have
applied it differently. Id. ¶ 3. Specifically, he would have found that Canada violated Article 1105
by treating the Korean Consortium more favorably than the applicants to the FIT program, and by
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awarding some of the grid capacity through GEIA rather than the FIT program. Id. ¶¶ 4–24. In
particular, Brower would have held that Canada’s decision-making regarding the Korean
Consortium crossed over from the realm of reasonable policy choices into unfair treatment in
violation of Article 1105. Id. ¶ 17. Brower also would have held that the FIT program is not
“procurement” as defined by Article 1108. Id. ¶¶ 25–34.
Mesa now asks this court to vacate the award pursuant to § 10 of the Federal Arbitration
Act (FAA), 9 U.S.C. § 10. Specifically, Mesa contends that vacatur is proper because the
arbitrators “exceeded their powers” as defined by § 10(a)(4) and were “guilty of misconduct . . .
or . . . misbehavior by which the rights of [Mesa were] prejudiced” as defined by § 10(a)(3). It
also argues that the tribunal acted “in manifest disregard of the law,” which the D.C. Circuit has
recognized as a valid ground for vacating an arbitral award. See LaPrade v. Kidder, Peabody &
Co., Inc., 246 F.3d 702, 706 (D.C. Cir. 2001) (internal quotation marks omitted). Mesa identifies
two of the tribunal’s actions that it believes violate these provisions. First, Mesa asserts that the
tribunal’s interpretation of the term “procurement” in Article 1108 was such a departure from the
text of NAFTA that it justifies vacatur. Second, Mesa contends that the tribunal improperly
granted “deference” to Canada’s decision-making regarding the FIT program and entering the
GEIA contract such that the proceedings were inappropriately biased, justifying vacatur.
The Court reviewed full briefing from the parties and held an oral argument on June 1,
2017.
CHOICE OF LAW
There is a preliminary issue regarding the controlling choice of law. Canada asserts that
the precedent of the Eleventh Circuit, rather than the D.C. Circuit, controls, because the seat of
this arbitration was Miami, Florida. If Eleventh Circuit decisions control, then the legal standard
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is much more favorable to Canada: under Eleventh Circuit precedent the grounds for vacating an
award enumerated in § 10 of the FAA are not applicable to a foreign arbitral award (like this one),
nor is the additional grounds of “manifest disregard of the law” available. See Resp.’s Br. [ECF
No. 22] at 14–15 (citing Indus. Risk Ins. v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434(11th Cir. 1998)).
Canada’s argument relies on Article V(1)(e) of the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards, which, as the name suggests, governs
enforcement of arbitral awards issued in foreign proceedings, and is incorporated in the Federal
Arbitration Act. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
June 10, 1958 (“Convention”), 21 U.S.T. 2517, codified at 9 U.S.C. §§ 201–08. Article V(1)(e)
of the Convention states that a court may vacate an award if it “has been set aside or suspended by
a competent authority of the country in which, or under the law of which, that award was made.”
“The phrase ‘under the law of which’ in Article V(1)(e) . . . refers to the procedural law governing
the arbitration, not the substantive law governing the Agreement.” Belize Soc. Dev. Ltd. v. Gov’t
of Belize, 668 F.3d 724, 727 (D.C. Cir. 2012). Thus, because the parties agree that the seat of the
arbitration was in Florida—which is within the Eleventh Circuit—Canada argues that the
procedural law of the Eleventh Circuit controls.
But this position contradicts the weight of the decisions that have considered similar issues.
Neither party has provided the Court with any cases discussing which circuit’s precedent governs
confirmation (or vacatur) of an arbitral award when the arbitration took place in one circuit and
the case is filed in a different circuit. However, there is extensive case law and legal commentary
regarding which circuit’s precedent applies when a federal question case is transferred from one
circuit to another: the law of the transferee court (here, the D.C. Circuit) rather than the transferor
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court (here, the Eleventh Circuit) governs. This is true in the context of transfers for the parties’
convenience under 28 U.S.C. § 1404, transfers to obtain proper venue under § 1406, and transfers
for multi-district litigation under § 1407. See Lafferty v. St. Riel, 495 F.3d 72, 83 (3d Cir. 2007)
(transfer under § 1406); Hartline v. Sheet Metal Workers’ Nat. Pension Fund, 286 F.3d 598, 599
(D.C. Cir. 2002) (per curiam) (transfer under § 1404); In re Korean Air Lines Disaster, 829 F.2d
1171, 1176 (D.C. Cir. 1987) (transfer under § 1407); see generally Charles A. Wright & Arthur R.
Miller, 15 Fed. Prac. & Proc. § 3846 (4th ed.) (citing, inter alia, cases from the First, Second, Ninth
and Eleventh Circuits reaching similar conclusions); see also Int’l Union of Painters & Allied
Trades, Local Unions No. 970 & 1144, AFL-CIO v. NLRB, 309 F.3d 1, 6 (D.C. Cir. 2002) (“To
the extent that [plaintiff] asks us to create special circuit law depending on the geographic origins
of a case, it asks us . . . to abandon the federal circuits’ normal task of trying to determine federal
law as correctly as possible.”).
This rule—that the transferee court’s interpretation of federal law controls—makes sense
given the nature of federal law. While there are “differences between different states’ laws,” there
is “unitary federal law” and “each [federal court] has an obligation to engage independently in
reasoned analysis” interpreting that law. In re Korean Air Lines Disaster, 829 F.2d at 1175–76.
When a federal court interprets federal law, “[b]inding precedent for all is set only by the Supreme
Court, and for the district courts within a circuit, only by the court of appeals for that circuit.” Id.
at 1176; see also Richard L. Marcus, Conflict Among Circuits and Transfers within the Federal
Judicial System, 93 YALE L.J. 677, 721 (1984)). This is in contrast to when a federal court sits in
diversity jurisdiction, where there are reasons based on comity and federalism for the substantive
law of the transferor jurisdiction—that is, the state law of the transferor jurisdiction—to apply.
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See Van Dusen v. Barrack, 376 U.S. 612, 637–42 (1964). 1 But when a court has federal question
jurisdiction, these rationales do not apply. See In re Korean Air Lines Disaster, 829 F.2d at 1176.
The only exception to this general rule—one that is not applicable here—is if the transferor court
already decided an issue (based on its own interpretation of the law) and thus the “law of the case”
governs that issue even in the transferee court. See Hill v. Henderson, 195 F.3d 671, 678 (D.C.
Cir. 1999).
Here, the case was not transferred under §§ 1404, 1406, or 1407—indeed, it was not
transferred at all. Rather, the arbitration took place within the Eleventh Circuit but the petition
was filed in this Circuit. Still, the same reasoning likely applies: there is one federal law, and this
Court has an obligation to interpret the law “as correctly as possible.” That might be why, during
oral argument, counsel for the respondent could not identify a single case in which a district court
applied an interpretation of federal law from another circuit that contradicted the precedent of the
circuit where the district court was located. Interpreting the law “as correctly as possible” requires
interpreting the law within the bounds of controlling precedent—which in this district, means D.C.
Circuit and Supreme Court precedent.
However, the Court need not actually decide this issue. Even under D.C. Circuit
precedent—which is more favorable to Mesa and which Mesa believes should apply—Mesa’s
arguments still fail. Thus, the Court will assume, without deciding, that D.C. Circuit law,
specifically its interpretation of federal law, controls.
1
Neither of the parties have argued that the state law of Florida controls.
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LEGAL STANDARD
Mesa asks this Court to vacate the award pursuant to § 10 of the FAA. See 9 U.S.C. § 10.
Canada, on the other hand, seeks enforcement of the award pursuant to the Convention. See 9
U.S.C. § 207.
The Convention is codified as part of the FAA, and is “a carefully crafted framework for
the enforcement of international arbitral awards.” TermoRio S.A. E.S.P. v. Electranta S.P., 487
F.3d 928, 935 (D.C. Cir. 2007). It “mandates very different regimes for the review of arbitral
awards (1) in the state in which, or under the law of which, the award was made” versus “(2) in
other states where recognition and enforcement are sought.” Id. (internal quotation marks omitted)
(quoting Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997)).
When a party seeks to set aside an award in “the state in which, or under the law of which, the
award was made,” that court is “free to set aside or modify an award in accordance with its
domestic arbitral law and its full panoply of express and implied grounds of relief.” Id. (internal
quotation marks omitted) (quoting Yusuf Ahmed Alghanim & Sons, 126 F.3d at 23). Here, the
arbitration award was issued in the United States, and thus U.S. law—namely the FAA and its
“full panoply of express and implied grounds of relief”—applies. Id. at 935–37; see also First Inv.
Corp. of Marshall Islands v. Fujian Mawei Shipbuilding, Ltd., 703 F.3d 742, 748 (5th Cir. 2012)
(holding that dismissal on basis of lack of personal jurisdiction as matter of constitutional due
process was appropriate); Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year
of Account, 618 F.3d 277, 292 (3d Cir. 2010) (“[B]ecause the arbitration took place in
Philadelphia, and the enforcement action was also brought in Philadelphia, we may apply United
States law, including the domestic FAA and its vacatur standards.”).
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Under the FAA, a “court shall confirm the [foreign arbitral] award unless it finds one of
the grounds for refusal or deferral of recognition or enforcement” that are enumerated in the
Convention or the FAA. See 9 U.S.C. § 207; TermoRio, 487 F.3d at 935. The FAA and the
Convention therefore “‘reflect[] an emphatic federal policy in favor of arbitral dispute resolution.’”
Marmet Health Care Center, Inc. v. Brown, 565 U.S. 530, 533 (2012) (per curiam) (quoting KPMG
LLP v. Cocchi, 565 U.S. 18, 25 (2011)). This emphatic federal policy is equally true in enforcing
foreign arbitration awards. See TermoRio, 487 F.3d 933–34 (citing Mitsubishi Motors Corp. v.
Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)); see also Newco Ltd. v. Gov’t of Belize,
650 F. App’x 14, 16 (D.C. Cir. 2016) (nonprecedential).
Thus, “courts may vacate an arbitrator's decision ‘only in very unusual circumstances.’”
Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (quoting First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (1995)). This “limited judicial review” is necessary to
“‘maintain[] arbitration’s essential virtue of resolving disputes straightaway.’” Id. (quoting Hall
St. Assocs., LLC v. Mattel, Inc., 552 U.S. 576, 588 (2008)). Section 10 of the FAA “provide[s]
the FAA’s exclusive grounds” for vacating an award. Hall St., 552 U.S. at 584.
The grounds for vacatur “codified in § 10(a) restate the longstanding rule that, ‘[i]f [an
arbitration] award is within the submission, and contains the honest decision of the arbitrators,
after a full and fair hearing of the parties, a court . . . will not set [the award] aside for error, either
in law or fact.’” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 693–94 (2010)
(Ginsburg, J., dissenting) (alterations in original) (quoting Burchell v. Marsh, 58 U.S. 344, 349
(1855)); see also E. Associated Coal Corp. v. United Mine Workers of Am., 531 U.S. 57, 62 (2000)
(“‘[A]s long as [an honest] arbitrator is even arguably construing or applying the contract and
acting within the scope of his authority,’ the fact that ‘a court is convinced he committed serious
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error does not suffice to overturn his decision.’” (quoting United Paperworkers Int’l Union v.
Misco, Inc., 484 U.S. 29, 38 (1987)). Mesa invokes two of those grounds: § 10(a)(3) and (a)(4).
Section 10(a)(3) permits vacatur “where the arbitrators were guilty of misconduct in refusing to
postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by which the rights of any party have been
prejudiced.” 9 U.S.C. § 10(a)(3). Section 10(a)(4) permits vacatur “where the arbitrators exceeded
their powers, or so imperfectly executed them that a mutual, final, and definite award upon the
subject matter submitted was not made.” Id. § 10(a)(4).
Mesa also argues that the award may be vacated on the grounds that it is in manifest
disregard of the law. In 2001, the D.C. Circuit explained that “[i]n addition to the limited statutory
grounds on which an arbitration award may be vacated, ‘arbitration awards can be vacated [only]
if they are in manifest disregard of the law.’” LaPrade, 246 F.3d at 706 (alterations in original)
(quoting Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1486 (D.C. Cir. 1997)). A tribunal is in
manifest disregard of the law if “(1) the arbitrators knew of a governing legal principle yet refused
to apply it or ignored it altogether and (2) the law ignored by the arbitrators was well defined,
explicit, and clearly applicable to the case.” Id. (internal quotation marks omitted). In 2008,
however, the Supreme Court held that §§ 10 and 11 “provide the FAA’s exclusive grounds for
expedited vacatur and modification.” Hall St., 552 U.S. at 584. Since then, the circuits have taken
different approaches to whether “manifest disregard of the law” is simply another way of
expressing the grounds in § 10(a) and thus survives, or does not. See, e.g., Coffee Beanery, Ltd.
v. WW, LLC, 300 F. App’x 415, 419 (6th Cir. 2008) (nonprecedential) (“In light of the Supreme
Court’s hesitation to reject the ‘manifest disregard’ doctrine in all circumstances, we believe it
would be imprudent to cease employing such a universally recognized principle.”) The D.C.
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Circuit has not decided the issue, but has assumed without deciding that “manifest disregard of the
law” survives as a separate ground for vacatur. See Affinity Fin. Corp. v. AARP Fin., Inc., 468 F.
App’x 4, 5 (D.C. Cir. 2012) (nonprecedential); Regnery Pub., Inc. v. Miniter, 368 F. App’x 148,
149 (D.C. Cir. 2010) (nonprecedential). This Court takes the same approach, and assumes without
deciding that “manifest disregard of the law” is a valid ground for vacatur under the FAA.
When analyzing these grounds for vacatur, “[i]t is not enough for petitioners to show that
the panel committed an error—or even a serious error.” Stolt-Neilsen, 559 U.S. at 671 (citing E.
Associated Coal, 531 U.S. at 62). Rather, under § 10(a)(4) “‘[i]t is only when [an] arbitrator strays
from interpretation and application of the agreement and effectively ‘dispense[s] his own brand of
industrial justice’ that his decision may be unenforceable.’” Id. (second and third alteration in
original) (quoting Major League Baseball Players Ass’n v. Garvey, 532 U.S. 504, 509 (2001) (per
curiam)). In other words, “[o]nly if ‘the arbitrator act[s] outside the scope of his contractually
delegated authority’—issuing an award that ‘simply reflect[s] [his] own notions of [economic]
justice’ rather than ‘draw[ing] its essence from the contract’—may a court overturn his
determination.” Oxford Health Plans LLC, 133 S. Ct. at 2068 (first alteration added) (quoting E.
Associated Coal, 531 U.S. at 62). Thus, “the sole question” is “whether the arbitrator (even
arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Id.The scope of review under § 10(a)(3) is similarly narrow. See Howard Univ. v. Metro.
Campus Police Officer’s Union, 512 F.3d 716, 721–22 (D.C. Cir. 2008). Section 10(a)(3) is
focused on whether the tribunal refused to hear material evidence, or otherwise employed an
improper procedure. See 9 U.S.C. § 10(a)(3); see also Gulf Coast Indus. Workers Union v. Exxon
Co., USA, 70 F.3d 847, 850 (5th Cir. 1995) (vacating award where the arbitrator refused to
consider key evidence); Totem Marine Tug & Barge, Inc. v. N. Am. Towing, Inc., 607 F.2d 649,
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653 (5th Cir. 1979) (vacating award based on arbitrator’s ex parte communications with a party).
But because “‘an arbitrator need not follow all of the niceties’” of the federal rules of evidence, a
court’s inquiry is limited to whether the tribunal “‘grant[ed] the parties a fundamentally fair
hearing.’” Howard Univ., 512 F.3d at 721 (quoting Lessin v. Merril Lynch, Pierce, Fenner &
Smith, Inc., 481 F.3d 813, 816 (D.C. Cir. 2007)). Hence, a court “‘may vacate an award only if
the panel’s refusal to hear pertinent and material evidence prejudices the rights of the parties to the
arbitration proceedings.’” Id. (quoting Lessin, 481 F.3d at 818). With this narrow scope of review
in mind, the Court turns to the issues at hand.
ANALYSIS
Mesa identifies two alleged errors in the tribunal’s analysis that show that the tribunal
exceeded its powers, prejudiced Canada’s rights, and acted in manifest disregard of the law. These
are, first, the tribunal’s interpretation of “procurement” as used in Article 1108 of NAFTA, and
second, the tribunal’s deference to the government of Ontario’s decisionmaking discretion in
implementing its renewable energy policy.
I. The Tribunal’s Interpretation of “Procurement”
Section 1108 of NAFTA states that “Articles 1102, 1103, and 1107 do not apply to: (a)
Procurement by a Party or a State enterprise” and that “Article 1106(1)(b) . . . [does] not apply to
procurement by a party or a State enterprise.” NAFTA Art. 1108(7), (8)(b). In the arbitration,
Mesa argued that because individual consumers purchase electricity through the grid, neither FIT
nor GEIA involve procurement by a state enterprise. The tribunal, however, disagreed. It
explained that because the government enters into contracts with energy generators to supply the
electrical grid with power, that constitutes government procurement, even if the end consumers
are individuals who ultimately purchase the electricity from the grid. See Award ¶¶ 443–448.
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Thus, because the FIT program and the contracts through the GEIA were “procurement” by the
Government of Ontario, then Articles 1102, 1103, and 1106 did not apply. In making this
determination, the tribunal noted that
it makes no difference . . . whether one focuses upon the single word ‘procurement’ or the
phrase ‘procurement by a Party or a state enterprise’ [in Article 1108]. The words ‘. . . by
a party or a state enterprise’ identify the entities involved, but do not change the nature of
the activity itself—which in this context assumes a State Party or state enterprise in any
event.”
Id. ¶ 421 (second alteration in original).
The Supreme Court explained in Oxford Health Plans v. Sutter that “[s]o long as the
arbitrator was ‘arguably construing’ the contract . . . a court may not correct his mistakes under
§ 10(a)(4).” Oxford Health Plans, 133 S. Ct. at 2070 (quoting E. Associated Coal, 531 U.S. at 62).
Here, the tribunal comprehensively examined the text itself and the parties’ arguments regarding
the text before ultimately concluding that the FIT program constituted “procurement” under
Article 1108.
The tribunal fully considered the primary argument that Mesa advances in this litigation:
that the word “procurement” in Chapter 10 of NAFTA excludes this type of contracting, and
therefore the word should be interpreted analogously in Chapter 11, which includes Article 1108.
Award ¶¶ 378–84. Article 1001(5)(a), in Chapter 10, states that “procurement does not
include . . . government provision of goods and services to persons.” This definition, Mesa argued
then and persists in arguing now, extends to Article 1108, and excludes Ontario’s contracts to
supply renewable energy to the electrical grid, which will eventually be purchased by consumers.
But the tribunal rejected this argument after examining the role and structure of Chapter 10 versus
Chapter 11 versus other chapters of the treaty. See Award ¶ 417, 423–430.
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It also compared the text of Article 1108 to other uses of the word “procurement” in
NAFTA and other international trade agreements. See id. ¶¶ 395–403. It considered and
differentiated the numerous previous arbitral awards that Mesa referenced, as well as the ordinary
meaning of the word in other contexts and the dictionary meaning. Id. ¶¶ 404–417. The tribunal
also discussed whether other adjudicatory bodies had considered the purchase of energy to be
“procurement” by a government. See id. ¶¶ 449–461. It then looked at the broader purpose of
Article 1108 within the structure of NAFTA. Id. ¶¶ 418–439. As part of that analysis, the tribunal
noted that the context of Article 1108 makes it clear that “procurement” refers to procurement by
a state, whether or not the text of Article 1108(7) or (8) include that specific language. Id. ¶ 421.
There can be no serious debate that the tribunal was interpreting the text of NAFTA to
reach its conclusion, and that it did so exhaustively. The tribunal employed all of the standard
interpretative tools that a court or arbitration panel would normally use when interpreting a text.
The dissenting opinion proves as much: there, Brower explains how he would have used the same
interpretative tools but analyzed them differently. See, e.g., Award (Brower, J., concurring in part
and dissenting in part) ¶ 29 (explaining how he would have distinguished the precedent that the
majority relied on). The fact that the tribunal noted that some words were superfluous in context
does not transform the tribunal’s thorough analysis from a text-based interpretation into something
else. The tribunal might have been wrong, but “[t]he potential for those mistakes is the price of
agreeing to arbitration.” Oxford Health Plans, 133 S. Ct. at 2070.
Mesa argues that the panel’s disregard of the words “Party or state enterprise” crosses the
line from a mere mistake, which is not grounds for vacatur, into abandoning the text entirely and
thus exceeding the tribunal’s authority. Federal courts can vacate arbitration awards where the
tribunal’s decision “disregard[s] or modif[ies] unambiguous contract provisions” and thus exceeds
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its authority. See Mo. River Servs., Inc. v. Omaha Tribe of Neb., 267 F.3d 848, 855 (8th Cir.
2001) (internal quotation marks omitted); Hoteles Condado Beach v. Union De Tronquistas Local
901, 763 F.2d 34, 41 (1st Cir. 1985) (quoting the same); see also PMA Capital Ins. Co. v. Platinum
Underwriters Bermuda, Ltd., 659 F. Supp. 2d 631, 639 (E.D. Pa. 2009) (similar). But here the
tribunal did not disregard or modify an unambiguous provision of the treaty. Indeed, it interpreted
relevant text to determine that the FIT program constituted “procurement by a Party or state
enterprise,” i.e., by the government of Ontario. The fact that it did so while explaining that some
words in that article were redundant in the specific context does not mean it disregarded or
modified the text of the treaty. Because “[i]t is the arbitrator's construction [of the contract] which
was bargained for” and “the arbitrator[s’] decision concerns construction of the contract,” this
Court therefore has “no business overruling [the tribunal].” Oxford Health Plans, 133 S. Ct. at
2071 (internal quotation marks omitted). Accordingly, the panel did not exceed its authority as
defined by 9 U.S.C. § 10(a)(4).
Mesa contends that the tribunal’s analysis of Article 1108 was a refusal to interpret the text
at all, and thus was “misbehavior” under § 10(a)(3) and was in manifest disregard of the law. See
Pet.’s Br. [ECF No. 1-1] at 26–27 (citing Hoteles Condado Beach, 763 F.2d at 41); Pet.’s Opp’n
& Rep. [ECF No. 30] at 34–38. But as explained above, the tribunal did undoubtedly interpret the
text of the treaty. And it did so after exhaustively reviewing the evidence that Mesa presented.
Mesa simply disagrees with the interpretation that the tribunal adopted. Hence, Mesa has not
shown that the tribunal’s interpretation of the word “procurement” provides a basis for vacating
the award under § 10(a)(3), (a)(4), or “manifest disregard of the law.”
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II. The Tribunal’s “Deference” to Canada
Article 1105(1) of NAFTA states: “Each Party shall accord to investments of investors of
another Party treatment in accordance with international law, including fair and equitable treatment
and full protection and security.” NAFTA Art. 1105(1). The tribunal explained that “the following
components can be said to form part of Article 1105: arbitrariness; gross unfairness;
discrimination; complete lack of transparency and candor in an administrative process; lack of due
process leading to an outcome which offends judicial propriety; and manifest failure of natural
justice in judicial proceedings.” Award ¶ 502 (internal quotation marks omitted). It further
explained that “when defining the content of Article 1105, one should further take into
consideration that international law requires tribunals to give a good level of deference to the
manner in which a state regulates its internal affairs.” Id. ¶ 505. Quoting another arbitral award,
the tribunal noted that states will sometimes make “controversial judgments” and “clear-cut
mistakes” because “[s]tate authorities are faced with competing demands on their administrative
resources” but “the imprudent exercise of discretion or even outright mistakes do not, as a rule,
lead to a breach” of Article 1105. Id. (internal quotation marks omitted).
Mesa urges that giving the government “a good deal of deference” in determining whether
the government’s actions were arbitrary or unfair is itself so unfair as to prejudice the proceedings,
exceed the tribunal’s authority, and demonstrate manifest disregard for the law. Mesa contends
that this deference changed the standard of proof in this proceeding, which rendered the proceeding
fundamentally unfair and violated the “equality of the parties” that is guaranteed by the rules
governing this arbitration contained in Article 1115 of NAFTA and UNCITRAL Rule 15(1).
Mesa’s arguments are unpersuasive. The tribunal did not grant Canada deference on its
legal arguments or on its factual assertions as that term is usually used in U.S. law. Instead, the
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tribunal closely—indeed exhaustively—analyzed whether Canada acted fairly. The tribunal
walked through all of Canada’s actions that Mesa claimed violated Article 1105. See Award ¶¶
513–51 (summarizing the parties’ positions on the facts in dispute); id. ¶¶ 552–682 (making factual
findings and analyzing whether Canada’s actions violated Article 1105). It examined the facts and
made de novo factual findings on the contested issues, including whether Canada imposed similar
requirements on the Korean Consortium as it did on the FIT applicants, and whether Canada misled
FIT applicants about what percentage of the grid capacity would be allocated through FIT. See,
e.g., Award ¶ 569–72 (finding significant requirements imposed on Korean Consortium); id. ¶ 585
(finding Korean Consortium was not offered additional government assistance); id. ¶ 582 (finding
reservation of grid capacity for Korean Consortium was not done in secret).
Thus, the tribunal’s “deference” merely amounted to an acknowledgment that a
government is entitled to make policy choices that are not perfectly rational. The tribunal
explained that although Canada could have behaved differently with respect to FIT and the GEIA,
those “are all policy considerations and questions that were for the government of Ontario alone.”
Id. ¶ 579. The tribunal continued:
It is not the Tribunal’s role to . . . weigh the wisdom of Ontario’s decision to enter into the
GEIA at the time . . . . Rather, it is for the Tribunal to examine whether . . . the beneficial
treatment was granted to the Korean Consortium arbitrarily, or in any other way that
contravened Article 1105. In particular, the Tribunal must determine whether Canada’s
conclusion of the GEIA lacked a justification, and whether there was a reasonable relationship
between the justification supplied and the terms of the GEIA.
Id. When read in the context of the full award, the tribunal’s statement quoted above, and its
statement that it would give a “good level of deference to the manner in which [Canada] regulates
its internal affairs” in paragraph 505, merely amount to the relatively mundane observation that an
imperfect policy choice by a government actor is not necessarily unfair or inequitable within the
meaning of Article 1105.
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The parties’ continued dispute about the legal validity of that point shows that their
disagreement is over whether the law was correctly applied, not over whether the tribunal exceeded
its power or disregarded the law entirely. Mesa presents numerous arbitral awards that conclude
that an arbitration panel has an obligation to examine the facts before it, while also acknowledging
that a government has some room to make policy decisions, which is described as “deference.”
See Pet.’s Opp’n & Rep. at 25–28; Not. of Supp. Auth. [ECF No. 32]. One of these arbitral awards
that Mesa cites explains a tribunal’s obligation when examining a country’s conduct as follows:
Given that the Claimant invokes [Article 1105(1)] . . . the Tribunal must determine whether
the Respondent’s conduct [violated that article]. . . . This determination is best done, not in
the abstract, but in the context of the facts of this particular case, taking into account the
indirect evidence of the content of the customary international law minimum standard of
treatment as evidence in the decisions of other NAFTA tribunals.
Windstream Award, Ex. A to Not. of Supp. Auth. [ECF No. 32-1] ¶ 358. Mesa argues that this
statement rejects any concept of deference, and shows that the tribunal here acted outside of its
authority.
But contrary to Mesa’s assertions, that analysis is exactly what this tribunal engaged in.
The tribunal did review the facts and reach factual determinations on contested issues.
Furthermore, the tribunal itself acknowledged several of these same prior arbitral awards that Mesa
relies on in its briefs to this Court, and concluded those awards were in accordance with the
deference standard it employed. See Award ¶ 505 n.36.
Judge Brower’s dissent also demonstrates that the issue here is simply over whether the
tribunal applied the law correctly. He acknowledges that a government has some room to make
policy decisions without running afoul of Article 1105. See Award (Brower, J., concurring in part
and dissenting in part) ¶ 17 (“There is an acceptable range of potential change that the Province
could lawfully effect.”). He then disagrees on whether the government acted within that reasonable
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policymaking authority, or crossed the line into unfair conduct prohibited by Article 1105. Id. But
nothing in Brower’s dissent indicates that he believes that the tribunal acted so far outside of the
bounds of its authority that it cannot be said to be interpreting the text, or that it prejudiced the
rights of a party, or acted in manifest disregard of the law.
Ultimately, there is nothing in either the tribunal’s award or the dissent to indicate that the
tribunal engaged in “misbehavior by which the rights” of Mesa “were prejudiced” under § 10(a)(3)
or that it “exceeded its powers” under § 10(a)(4). Mesa argues that consent to arbitration was
premised on the arbitrators’ following the rules of arbitration—which require “equal treatment”
and due process for both parties, as defined by NAFTA Article 1115 and UNCITRAL Rule 15(1).
Mesa of course is correct that the agreement to arbitrate is premised on the arbitrator’s following
the agreed-upon rules, and that by doing otherwise a tribunal might exceed its powers or misbehave
in a manner that causes prejudice. See Stolt-Neilsen, 559 U.S. at 670–71; Oxford Health Plans,
133 S. Ct. at 2068. And applying an incorrect standard of proof—such as “beyond a reasonable
doubt” when “preponderance of the evidence” is appropriate—is one way in which an arbitrator
might stray from the agreed-upon rules of arbitration. See Sq. Plus Operating Corp. v. Local Union
No. 917, 90 Civ. 1713 (LJF), 1992 WL 116610, at *2 (S.D.N.Y. May 15, 1992) (vacating arbitration
award where arbitrator required proof beyond a reasonable doubt rather than applying preponderance
of the evidence standard); In re A.H. Robins, Co., Inc., 221 B.R. 169, 175 (E.D. Va. 1998) (vacating
award where arbitrator improperly “relieved [a party] of her burden of proving causation”). But there
is nothing here to show that the tribunal treated the parties unequally or changed the standard of
proof. The tribunal interpreted the text of Article 1105, which requires “fair and equitable
treatment,” in accordance with “international law” to include a traditional norm that a
government’s action is not unfair or inequitable if it had a justification, and if “there was a
reasonable relationship between the justification supplied” and the action taken. Award ¶ 579.
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This is an interpretation of the text of the treaty based, as explained above, on analysis of the text,
context, and structure of the treaty, other relevant treaties, and relevant precedent from similar
arbitration awards. Whether or not that interpretation was correct, it surely was not an abdication
of the tribunal’s duty to interpret the contract, nor was it “misbehavior.” And it did not change
any standard of proof: the tribunal did not presume that Canada’s factual assertions were correct
or defer to Canada’s legal interpretations of what Article 1105 requires. Rather, the tribunal merely
acknowledged that a government can make poor or mistaken decisions without violating Article
1105’s prohibition on inequitable treatment. The tribunal thus simply reached a legal conclusion
that Mesa does not agree with.
Similarly, the tribunal did not “[know] of a governing legal principle yet refuse[] to apply
it” or ignore law that “was well defined, explicit, and clearly applicable to the case.” LaPrade, 246
F.3d at 706. The tribunal stated the governing legal rule by quoting Article 1105, and interpreted
it by drawing on past arbitral awards to give meaning to the vague standard of “fair and equitable
treatment.” Moreover, even if the tribunal stated the wrong standard, Mesa has certainly not
demonstrated that there is a different interpretation of “fair and equitable treatment” that is well-
defined, explicit, and clearly applicable here. At best, there is conflicting authority on how
deference plays into the standard under Article 1105, as demonstrated by the numerous arbitral
awards submitted by the parties that employ deference to a government’s decisionmaking slightly
differently. 2 See, e.g., Resp.’s Br. [ECF No. 22] at 30–33 (collecting cases). Thus, this award
cannot be vacated on the ground of manifest disregard of the law.
2
In its briefing, Canada compares this “deference” under international law to a federal court’s deference to
an administrative agency under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
While there appear to be some similarities between Chevron deference and the type of deference the tribunal employed
here—namely, the principle of according governments room to weigh competing policy values and make choices,
even if imperfect ones—the deference that the tribunal employed seems to be a different type. The tribunal did not
accept Canada’s interpretation of the law (whether Article 1105 or any other law) in lieu of its own, which is a core
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III. Canada’s Request for Attorney’s Fees
Canada argues that a court has inherent authority to award attorney’s fees when the “‘losing
party’s actions were frivolous, unreasonable, or without foundation, even though not brought in
subjective bad faith.’” See Resp.’s Br. at 40–41 (quoting Unite Here Local 23 v. I.L. Creations of
Md., Inc., 148 F. Supp. 3d 12, 23 (D.D.C. 2015)). Mesa responds that the Court only has the power
to award fees against a party who acts in bad faith. See Pet.’s Opp’n & Rep. at 39 (citing United
States v. Wallace, 964 F.2d 1214, 1219 (D.C. Cir. 1992)).
Regardless of what exact power the Court has, Mesa’s appeal is not frivolous and does not
indicate subjective or objective bad faith. Although Mesa’s petition will be denied, seeking
vacatur alone is not an indication of bad faith—rather, it is simply an exercise of the losing party’s
rights. Cf. Getma Int’l v. Republic of Guinea, 142 F. Supp. 3d 110, 114–15 (D.D.C. 2015)
(employing bargained-for review mechanisms is within the parties’ rights); NAFTA Art. 1136
(contemplating enforcement or vacatur proceedings when parties do not voluntarily comply with
arbitration awards). Mesa has identified two grounds for vacatur that are explicitly enumerated in
the FAA, and one that is arguably implied and has been recognized by this Circuit previously.
While Mesa’s arguments that these three grounds justify vacating the award are not meritorious,
they are not so lacking in merit to be described as frivolous or as evidence of bad faith. Thus,
Canada’s request for fees and costs incurred in this civil action will be denied.
CONCLUSION
The Court will deny Mesa Power Group’s petition to vacate the award, and will grant the
Government of Canada’s counter-petition to confirm the award. Canada’s request for attorney’s
fees will be denied. A separate order will be issued on this date.
tenant of Chevron. See generally Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989
Duke L.J. 511, 512–14 (discussing Chevron deference and statutory interpretation).
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/s/
JOHN D. BATES
United States District Judge
Dated: June 15, 2017
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