Teco Guatemala Holdings, LLC v. Republic of Guatemala

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
TECO GUATEMALA HOLDINGS, LLC,
Petitioner,
v. Civil Action No. 17-102 (RDM)
REPUBLIC OF GUATEMALA,
Respondent.
MEMORANDUM OPINION AND ORDER
Petitioner TECO Guatemala Holdings, LLC (“TECO”) commenced this action by filing a
petition to confirm an arbitral award rendered by the International Centre for Settlement of
Investment Disputes (“ICSID”) against the Republic of Guatemala (“Guatemala”). Dkt. 1.
Although all agree that the role of a federal court asked to confirm an ICSID award is limited,
Guatemala requests that the Court dismiss TECO’s petition for failure to state a claim. Dkt. 23.
Guatemala maintains, in short, that ICSID annulled the arbitral award and that, as a result, there
is nothing for this Court to confirm. TECO, unsurprisingly, disagrees and submits that the
arbitral award that it seeks to enforce is alive and well. Dkt. 26. As explained below, TECO has
the better argument and, accordingly, the Court will DENY Guatemala’s motion to dismiss
TECO’s petition, Dkt. 23.
I. BACKGROUND
A. ICSID Structure and Enforcement
In the 1960s, the World Bank “spearheaded” an effort to develop a “multilateral treaty
aimed at encouraging and facilitating private foreign investment in developing countries.” Mobil
Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 863 F.3d 96, 100 (2d Cir. 2017)
(citing Anthony R. Parra, The History of ICSID 11–12, 24–26 (Oxford 2012)). The product of
that effort was the International Convention on the Settlement of Investment Disputes between
States and Nationals of Other States (“ICSID Convention”), Mar. 18, 1965, 17 U.S.T. 1270, a
multilateral treaty designed “to promote economic development and private international
investment by providing a legal framework . . . to resolve . . . disputes between private investors
and governments.” Micula v. Gov't of Romania, 104 F. Supp. 3d 42, 44 (D.D.C. 2015). Most
significantly for present purposes, the ICSID Convention established the International Centre for
Settlement of Investment Disputes—or “ICSID,” as it is commonly known—which has the
authority to convene arbitration panels “to adjudicate disputes between international investors
and host governments in ‘Contracting States.’” Mobil Cerro Negro, Ltd., 863 F.3d at 101. The
United States is a signatory to the ICSID Convention, see Int’l Ctr. for Settlement of Inv.
Disputes, List of Contracting States and Other Signatories of the Convention (last visited Sept.
29, 2018), and Congress has enacted implementing legislation, see Convention on the Settlement
of Investment Disputes Act of 1966, Pub. L. 89–532, 80 Stat. 334 (1966) (codified at 22 U.S.C.
§§ 1650 and 1650a).
The ICSID Convention provides an international framework for adjudicating and
enforcing investor-state disputes. First, “[a]ny Contracting State or any national of a Contracting
State” may request that ICSID convene an arbitration tribunal. See ICSID Convention art. 36.
The tribunal, consisting of either a single arbitrator or “any uneven number of arbitrators,” id.
art. 37, considers the dispute and issues a written award, which “deal[s] with every question
submitted to the [t]ribunal, and state[s] the reasons upon which it is based,” id. art. 48. If either
party contests the tribunal’s award, it may request “revision” if there is a newly-discovered
material fact previously unknown to the parties and arbitrator, see id. art. 51, or “annulment” if a
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party challenges the tribunal’s substantive decision, id. art. 52. When a party seeks annulment,
ICSID convenes an ad hoc committee of three members, which is authorized “to annul the award
or any part thereof.” Id. At a party’s request, enforcement of an award is “stayed provisionally
until the [c]ommittee” renders its decision. Id. But, “[e]xcept to the extent that enforcement”
has been stayed, the tribunal’s award remains “binding on the parties and shall not be subject to
any appeal or to any other remedy” other than those set forth in the ICSID Convention. Id. art.
53. Following an annulment, either partial or full, either party may request resubmission of the
dispute to a new tribunal—although if an award had been annulled only in part, the new tribunal
is prohibited from reconsidering any non-annulled portion of the award. Id. r. 55. As
Guatemala acknowledges, “[p]artially annulled awards can be enforced.” Dkt. 23-1 at 22.
ICSID is not empowered to enforce awards. Instead, prevailing parties must register their
awards with a court of a member state. The courts of member states are required to “recognize
an award . . . as binding and [to] enforce the pecuniary obligations imposed by that award within
its territories as if it were a final judgment of a court in that [s]tate,” or, for a member state with
“a federal constitution,” to “treat the award as if it were a final judgment of the courts of a
constituent state.” Id art. 54. A member state is “not permitted to examine an ICSID award’s
merits, its compliance with international law, or the ICSID tribunal’s jurisdiction to render the
award;” all it may do is “examine the judgment’s authenticity and enforce the obligations
imposed by the award.” Mobil Cerro Negro, Ltd., 863 F.3d at 102. Consistent with this
obligation, the U.S. implementing legislation confers exclusive jurisdiction on the federal district
courts to enter awards, see 22 U.S.C. § 1650a(b), and provides that an ICSID arbitration award
“shall be enforced and shall be given the same full faith and credit as if the award were a final
judgment of a court of general jurisdiction of one of the several States.” 22 U.S.C. § 1650a(a).
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B. Guatemala and TECO’s Dispute
The ICSID arbitration at issue in this case involves a dispute between TECO Guatemala
Holdings, LLC (hereinafter “TECO”), an energy company incorporated in the United States, and
the Republic of Guatemala. Dkt. 1 at 2 (Pet. ¶ 2). In 1997, Guatemala announced a plan to
privatize Empresa Eléctrica de Guatemala, S.A. (“EEGSA”), the largest electricity distribution
company in the country. Id. at 4 (Pet. ¶ 9). A consortium of energy companies, including TPS
de Ultramar Guatemala, S.A. (“TPS”), a subsidiary of TECO Energy, created an investment
company that acquired a controlling interest in EEGSA in July 1998. Id. (Pet. ¶ 10). TPS held a
“21 percent” share of the consortium, and from 1998 until the sale of the consortium in 2010, the
consortium maintained “an approximate 81 percent controlling interest in EEGSA.” Id. (Pet. ¶
10). In 2005, TPS’s shares in the consortium were transferred to TECO. Id. (Pet. ¶ 11).
The arbitration between TECO and Guatemala concerned the electricity rates paid to
EEGSA and other distribution companies. Among other components, the applicable rates
incorporated a Value Added for Distribution—or “VAD”—which was intended to compensate
the distributors for operating expenses and infrastructure and to provide a fair return on
investment. Id. (Pet. ¶ 12). The VAD was recalculated every five years by a Guatemalan
regulatory agency, the National Electric Energy Commission (“CNEE”), which published the
electricity rates for EEGSA and other electricity distributors in accordance with Guatemalan law.
Id. According to TECO, the process by which NCEE set the VAD for the 2008–2013 tariff
period was unlawful in multiple respects and, as a result, violated Guatemala’s obligation under
Article 10.5 of the Dominican Republic-Central America Free Trade Agreement (“DR-
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CAFTA”), 43 I.L.M. 514 (2004), “to afford protected investments fair and equitable treatment.”1
Id. at 5 (Pet. ¶ 14). CNEE’s actions resulted in “cash flow losses” for TECO and, according to
TECO, ultimately led to the sale of the company “at a depreciated value” in 2010. Id. at 5 (Pet.
¶¶ 13–14). Pursuant to Articles 10.15 and 10.16 of the DR-CAFTA, TECO filed a claim in
arbitration against Guatemala in October 2010. Id. at 5–6 (Pet. ¶¶ 15–16). That proceeding was
governed by the ICSID Convention and the ICSID Rules and Procedures for Arbitration
Proceedings. Id. at 5 (Pet. ¶ 15).
C. Procedural History before the ICSID
In the DR-CAFTA arbitration, TECO sought damages in the amount of $243,585,335.
Id. at 6 (Pet. ¶ 17). That total was the sum of two distinct claims for relief:
First, TECO sought $21,100,552 to compensate it for the “portion of the cash flow
EEGSA lost from August 1, 2008, when the VAD took effect, until October 21, 2010, when
[TECO] sold its ownership interest in EEGSA.” Id. (Pet. ¶ 17). That amount, according to
TECO, was necessary to compensate it for the revenue that it would have received during the
relevant period had Guatemala not understated the VAD. TECO refers to this claim as its
“historical loss” or “cash flow value” claim.
Second, TECO sought $222,484,783 to compensate it for “the damages [it] suffered . . .
as a result of the impaired value at which [TECO] sold its ownership interest in EEGSA.” Id. at
7 (Pet. ¶ 17). This amount, according to TECO, was necessary to compensate it for the
depreciated market value of the consortium, and thus the depreciated market value of TECO’s
1
As with the ICSID Convention, the United States is party to DR-CAFTA. See 19 U.S.C. §
4001 et seq.
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share, resulting from the understated VAD. TECO refers to this claim as its “loss of value”
claim. Id. (Pet. ¶ 17).
On December 19, 2013, the ICSID arbitration Tribunal found that Guatemala had
violated the DR-CAFTA. See id. (Pet. ¶¶ 18–19); see also Dkt. 1-2 at 3 (Arb. Award). TECO’s
success on its damage claims, however, was mixed. The Tribunal found the TECO had
presented sufficient evidence to establish an “historical loss” of $21,100,552. Dkt. 1-2 at 146
(Arb. Award ¶ 742). As the Tribunal explained, the evidence showed that TECO was entitled to
its “share of the higher revenues that EEGSA would have received had the CNEE observed due
process in the tariff review,” which was calculated “from the moment the high revenues would
have been first received until the moment when [TECO] sold its share in EEGSA.” Id. But the
Tribunal was not persuaded that TECO had offered evidence sufficient to prevail on its “loss of
value” claim for $222,484,783. Id. at 146–47 (Arb. Award ¶¶ 744–749). As to that claim, the
Tribunal found that there was not “sufficient evidence of the existence and quantum of the losses
that were allegedly suffered as a consequence of the sale” of the consortium at a depreciated
price. Id. at 147 (Arb. Award ¶ 749).
The final paragraph of the Tribunal’s decision reads as follows:
The Arbitral Tribunal decides:
A. That it has jurisdiction to decide on Teco’s claims under the CAFTA-
DR;
B. That Guatemala has violated its obligation to accord to Teco’s
investment Fair and Equitable Treatment under Article 10.5 of the
CAFTA-DR;
C. That Guatemala shall pay US$21,100,552 to Teco as damages;
D. That the amount mentioned in section C above will bear interest at the
US Prime rate plus a 2 percent premium as from October 21, 2010 until
the date of full payment;
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E. That interest shall be compounded on an annual basis;
F. That Guatemala shall support the entirety of its costs and expenses and
pay US$ [sic] US$7,520,695.39 to Teco on account of its legal costs
and expenses; [and]
G. That all any other claims and pleas for relief are rejected.
Id. at 153 (Arb. Award ¶ 780).
On April 18, 2014, TECO filed an application with ICSID to annul the Tribunal’s award
in part, and, that same day, Guatemala filed a petition seeking to annul the award in full. Dkt. 1
at 7 (Pet. ¶ 20). TECO sought to annul the award only to the extent that it denied the company’s
“loss of value” claim, denied its request for interest on its “historical losses” claim for the period
from August 1, 2009 until October 21, 2010, and denied its “claimed interest rate applicable to
pre-award interest.” Id. (Pet. ¶ 20). Guatemala, on the other hand, sought to annul the
Tribunal’s award in its entirety. Id. (Pet. ¶ 20).
In response, ICSID convened an ad hoc Committee to consider the annulment requests.
Dkt. 1 at 7 (Pet. ¶ 21); see also Dkt. 1-3 at 3 (Annul. Award). The Committee rejected each of
Guatemala’s challenges to the Tribunal’s finding that it had violated the DR-CAFTA. See Dkt.
1-3 at 88–95 (Annul. Award ¶¶ 274–300); id. at 98–103 (Annul. Award ¶¶ 308–323); id. at 104–
106 (Annul. Award ¶¶ 327–331). The Committee also rejected “Guatemala’s argument that the
[T]ribunal failed to provide reasons and contradicted itself within its decision on damages for
historical losses,” id. at 109 (Annul. Award ¶ 343), and, accordingly, opined that “annulment of
the Award . . . is not warranted,” id. at 108 (Annul. Award ¶ 337). In contrast, the Committee
was persuaded by TECO’s contention that the Tribunal’s “decision on the [company’s] loss of
value claim [did] not meet the standards” required by the ICSID convention, id. at 42 (Annul.
Award ¶ 127), because “the Tribunal’s reasoning . . . [was] not clear at all,” id. (Annul. Award
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¶ 128). It, accordingly, decided that the Tribunal’s decision on TECO’s “loss of value claim . . .
need[ed] to be annulled.” Id. (Annul. Award ¶ 127). The Committee also concluded that the
Tribunal erred in declining to award TECO “interest on historical damages for the period before
EEGSA’s sale.” Id. at 63 (Annul. Award ¶ 198).
The final paragraph of the Committee’s decision reads, in relevant respects, as follows:
For the reasons set out of above, the Committee decides as follows:
(1) Pursuant to Article 52(1)(e) of the ICSID Convention, decides to annul
the Award’s decision on damages for the loss of value claim, as
reflected in paragraphs C and G of the dispositif of the Award . . . and
the corresponding paragraphs in the body of the Award related to
damages (paragraphs 743–761);
(2) Pursuant to Article 52(1)(d) of the ICSID Convention, decides to annul
the Award’s decision on interest on historical damages for the period 1
August 2009 until 21 October 2010, as reflected in paragraphs D and
G of the dispositif of the Award and the corresponding paragraphs in
the body of the Award related to damages (paragraphs 765, 768);
(3) As a result of the above annulment, decides to annul the Award’s
decision on costs, as reflected in paragraph F of the dispositif of the
Award and the corresponding paragraphs in the body of the Award
related to costs (paragraphs 769–779);
(4) Dismisses the other grounds of TECO’s Application for the Partial
Annulment of the Award . . . ;
(5) Dismisses the other grounds of Guatemala’s Application for the
Annulment of the Award . . .;
....
(10) Notes that the stay of enforcement of the Award terminates
automatically as of the date of this Decision pursuant to Arbitration
Rule 54(3); [and]
(11) Dismisses all other claims.
Dkt. 1-3 at 120–21 (Annul. Award ¶ 382).
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On January 16, 2017, TECO initiated this action, seeking to “confirm and recognize” the
“Final Award” and the entry of judgment against Guatemala “in the amounts stated in the Award
and the Annulment decision.” Dkt. 1 at 9 (Pet. ¶ 27). TECO alleges, in particular, that it “is
entitled to damages in the amount of . . . $21,100,552 [for its historical loss], plus interest on that
amount at the US Prime rate plus two percent as from October 21, 2010 until the date of full
payment, compounded annually.” Id. (Pet. ¶ 28). TECO also seeks entry of judgment awarding
it costs as stated in the annulment decision. Id. (Pet. ¶ 29).
Guatemala has now filed a motion to dismiss TECO’s petition pursuant to Fed. R. Civ.
Proc. 12(b)(6).2
II. ANALYSIS
A. Threshold Issues
Before addressing the merits of Guatemala’s motion, the Court must confront several
threshold issues. As explained above, the ICSID Convention requires that the United States
“recognize an award” and “enforce the pecuniary obligations imposed by that award.” ICSID
Convention art. 54. The “Convention does not obligate its contracting states,” however, “to
adopt any specific method for fulfilling those obligations.” Micula, 104 F. Supp. 3d at 52. U.S.
Courts have, as a result, endeavored to define whether a party with an ICSID award may register
the award through a summary proceeding, such as an ex parte petition, or must instead initiate a
plenary action against the foreign sovereign, which, among other things, “would require service
on the foreign government” in compliance with the Foreign Sovereign Immunities Act. Id. at 49;
2
After the parties completed briefing on Guatemala’s motion, TECO filed a motion for leave to
file a sur-reply, Dkt. 28, which Guatemala opposed, Dkt. 29. Because the Court’s decision does
not require consideration of TECO’s sur-reply, the Court will DENY TECO’s motion for leave
to file a sur-reply, Dkt. 29, as moot.
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see also 28 U.S.C. § 1608; Mobil Cerro Negro, Ltd., 863 F.3d at 107–08 (surveying different
approaches to enforcement).
Even when conducting plenary proceedings, moreover, it is not clear what legal standards
should apply. Although the Second Circuit has offered a roadmap of appropriate steps—such as
“fil[ing] a complaint in district court, detailing the terms of the award, establishing proper venue,
. . . [and] furnishing a certified copy of the award,” and then filing “a motion for judgment on the
pleadings” or “a motion for summary judgment,” Mobil Cerro Negro, Ltd., 863 F.3d at 117–
18—it remains unsettled whether, and to what extent, a petition to enforce an ICSID award
should be treated like a traditional civil complaint.
The Court need not resolve these issues here, however, because Guatemala has
“waive[d] any objections to the sufficiency of service of the Petition,” Dkt. 21 at 2, and the
parties agree that the first step is for the Court to consider whether TECO’s petition states a
plausible claim on its face, see, e.g., Dkt. 20 at 2. At least for purposes of resolving Guatemala’s
threshold motion to dismiss, the Court will therefore “accept as true” the factual allegations
contained in TECO’s petition, see Erickson v. Pardus, 551 U.S. 89, 94 (2007), and will assess
whether those allegations are sufficient, as a matter of law, to state an entitlement to entry of
judgment enforcing the ICSID award.
B. Guatemala’s Motion to Dismiss
Guatemala’s principal argument is straightforward. It explains that “[a]n ICSID award
comprises two district parts: the reasoning” and “the enforceable decision,” and it maintains that
only the “decision”— or dispositif—has any legally enforceable effect. Dkt. 23-1 at 17. Thus,
according to Guatemala, when “determining the legal sufficiency of the Petition, the Court must
consider whether the dispositif of the [a]nnulment Committee purports to support the claim for
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relief pled by Petitioner.” Dkt. 27 at 10. From this perspective, Guatemala argues, TECO’s
claims fail as a matter of law because the Committee’s decision “expressly annulled the award of
damages and the award of interest” in “the [o]riginal [a]ward’s dispositif.” Dkt. 23-1 at 8. In
other words, because the Committee annulled the Tribunal’s award of damages and interest, “it
left nothing from the [o]riginal [a]ward to enforce.” Id. Guatemala’s argument is based on two
premises—first, that a court may not look beyond the dispositif to determine the meaning and
effect of an arbitral award, and, second, that the ICSID Committee’s dispositif annulled the
entirety of the Tribunal’s award to TECO. Neither premise withstands scrutiny.
First, Guatemala argues that the Court may look only to the dispositif—that is, the final
paragraph—of the Committee’s decision because, like “a memorandum opinion and order issued
in the domestic context, a party may challenge the sufficiency of the former but it enforces only
the latter.” Dkt. 23-1 at 17. To be sure, a dispositif, like a court order, is the portion of the
decision that has affirmative legal effect. That does not mean, however, that a dispositif—or a
court order—must be construed in a vacuum, without reference to the reasoning that led to the
operative conclusion. Guatemala cites no authority in support of its contention that the dispositif
must be construed in the dark, nor is the Court aware of any authority supporting that
proposition. In practice, moreover, it is not unusual for courts to look to the reasoning contained
in an arbitral award to clarify or to understand the ultimate disposition. See Duke Energy Int'l
Peru Inv. No. 1 Ltd. v. Republic of Peru, 892 F. Supp. 2d 53, 54, 57–58 (D.D.C. 2012); see also,
e.g., Cleveland Paper Handlers & Sheet Straighteners Union No. 11 of Int'l Printing & Graphic
Commc'ns Union v. E. W. Scripps Co., 681 F.2d 457, 460 (6th Cir. 1982) (“If the arbitrator's
opinion and award, read together, are not ambiguous the award should be enforced.”).
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But, even if Guatemala were correct—and it is not—that the dispositif must stand alone,
its argument would fail because the dispositif contained in the Committee’s decision
unambiguously supports TECO’s position. Guatemala posits that the Committee’s dispositif
annulled the Tribunal’s “dispositif . . . in all relevant respects.” Dkt. 23-1 at 17. It asserts:
“Specifically, the only part of the dispositif which supports [TECO’s] request for judgment of
‘$21,100,552 plus interest’” is found in “subparagraphs C and D,” and the Committee’s dispositif
“expressly addressed both C and D of the [Tribunal’s] Award and expressly annuls both.” Id.
That, however, is not what the Committee’s dispositif says. It does not annul all of
subparagraphs C and D but, rather, annuls only the portions of those subparagraphs that failed to
grant TECO the additional relief that it sought. Thus, subparagraph (1) of the Committee’s
dispositif annuls the Tribunal’s “decision on damages for the loss of value claim”—that is, the
Tribunal’s rejection of TECO’s claim for $222,484,783 in “loss of value” in its investment in
EEGSA—“as reflected in paragraphs C and D of the dispositif of the” Tribunal. Dkt. 1-3 at 120
(Annul. Award ¶ 382(1)). Had the Committee intended to annul the Tribunal’s award to TECO
of the $22,100,552 on the company’s separate “historical loss” claim, it would have annulled the
entirety of subparagraphs C and D, as Guatemala incorrectly posits that it did. The fact that it,
instead, annulled only the Tribunal’s “decision on damages for the loss of value claim, as
reflected in” those paragraphs is dispositive. Id. (emphasis added). The operative paragraph of
the Committee’s decision does just what TECO contends it did; it annulled the Tribunal’s
decision declining to include in the amount that “Guatemala shall pay,” Dkt. 1-2 at 153 (Arb.
Award ¶ 780(C)), the additional damages that TECO sought for its “loss of value claim,” Dkt. 1-
3 at 120 (Annul. Award ¶ 382(1)). Similarly, when the Committee annulled the Tribunal’s
“decision on damages for the loss of value claim, as reflected in paragraph[] . . . G of the
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dispositif,” id., it annulled the Tribunal’s decision “reject[ing]” “all other claims and pleas for
relief,” Dkt. 1-2 at 153 (Arb. Award ¶ 780(G)), to the extent the Tribunal did not award TECO
relief on its “loss of value claim.”
The same is true with respect to subparagraph 382(2) of the Committee’s decision. That
subparagraph did not annul the Tribunal’s award of relief to TECO on its “historical loss” claim
but, rather, annulled the Tribunal’s decision only to the extent it failed to award “interest” on that
claim “for the period 1 August 2009 until 21 October 2010, as reflected in paragraphs D and G
of the dispositif of the” Tribunal.” Dkt. 1-3 at 120 (Annul. Award ¶ 382(2)). Paragraph D of the
Tribunal’s dispositif awarded TECO interest on the amount awarded in paragraph C “at the US
Prime rate plus a 2 percent premium . . . from October 21, 2010 until the date of full payment.”
Dkt. 1-2 at 153 (Arb. Award ¶ 780(D)). It was only to the extent that paragraph D did not award
damages for the addition period from “1 August 2009 until 21 October 2010” that the
Committee’s dispositif annulled that decision; in all other respects, the Committee denied relief.
Dkt. 1-3 at 120-21 (Annul. Award ¶ 382(2), (4)–(5), (11)).
Accordingly, applying the methodology that Guatemala urges—which looks only at the
words of the dispositifs—its argument fails. Read together, the Tribunal and Committee
dispositifs (1) award TECO $21,100,552 in “historical loss” damages, along with interest at the
U.S. prime interest rate plus two percent, from October 21, 2010 to the date of payment, and (2)
permit TECO to return to a new arbitral tribunal to pursue its additional claims for $222,484,783
in “loss of value” damages and to pursue its claim for additional interest on its “historical loss”
claim for the period from August 1, 2009 to October 21, 2010. Because TECO asks only that
this Court confirm the ICDIS award with respect to TECO’s “historical loss” claim, interest on
that claim from October 21, 2010 to the date of payment, and relevant administrative costs and
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legal costs, Dkt. 1 at 10 (Prayer for Relief); see also Dkt. 1-3 at 120 (Annul. Award ¶ 382(8),
(9)), Guatemala’s contention that the relevant award is a nullity is unconvincing.
CONCLUSION
For the reasons explained above, Respondent’s motion to dismiss, Dkt. 23, is hereby
DENIED.
SO ORDERED.
/s/ Randolph D. Moss
RANDOLPH D. MOSS
United States District Judge
Date: September 30, 2018
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