Brendan Gooley

The Tenth Circuit recently affirmed a district court’s decision not to vacate a confirmation award even though the underlying arbitration award had been annulled by a Bolivian court following the confirmation. The Tenth Circuit agreed that public policy considerations, including concerns about encouraging endless litigation, rendered the district court’s decision not to vacate the confirmation as within that court’s discretion.

Compañía de Inversiones Mercantiles S.A. (CIMSA) and Grupo Cementos de Chihuahua S.A.B. de C.V. (GCC) entered into a shareholder agreement in which GCC purchased shares of a Bolivian company from CIMSA. The shareholder agreement included an arbitration clause and provided that CIMSA had a right of first refusal if GCC sought to sell its shares. CIMSA attempted to exercise that right when GCC moved to sell shares, but GCC purportedly claimed that CIMSA’s right was invalid and sold the shares to a third party. The sale triggered lengthy arbitration and court proceedings. In short, an arbitral tribunal in Bolivia awarded CIMSA approximately $34 million in damages plus $2 million in costs and fees, all subject to 6% interest. GCC moved to annul the award in Bolivia but lost. CIMSA then obtained an order from the U. S. District Court for the District of Colorado confirming the award. The Tenth Circuit affirmed that award. GCC then persuaded a different panel of the Bolivian court that had ruled against it to annul the arbitral award. With that annulment in hand, GCC moved to vacate the district court’s confirmation order. The district court denied GCC’s motion. GCC appealed that decision to the Tenth Circuit, which affirmed.

GCC initially  argued that a U. S. court cannot confirm an arbitral award that has been annulled by the primary jurisdiction. The Tenth Circuit disagreed, noting:

[W]hen a court has been asked to vacate an order confirming an arbitral award that has later been annulled, it may balance against comity considerations (1) whether the annulment is repugnant to U.S. public policy or (2) whether giving effect to the annulment would undermine U.S. public policy.

GCC nevertheless argued that the district court erred by considering in conjunction with that analysis not only whether the orders of the Bolivian court were repugnant to U.S. public policy, but “whether giving effect to those orders through vacatur of its Confirmation Judgment would offend U.S. public policy.” The Tenth Circuit disagreed, explaining that the district court properly considered whether giving effect to orders would violate public policy (and holding that it would because doing so would “encourage ‘proceedings without end’”) in addition to the question of whether the orders themselves were repugnant to U.S. public policy. The Tenth Circuit held that the district court did not abuse its discretion in concluding “that (1) giving effect to the [] Bolivian orders [annulling the arbitral award] would offend U.S. public policy and (2) GCC acted inequitably in the United States and Bolivian proceedings[:]”

The interests of the finality of judgments, respecting parties’ contractual expectations, and the U. S. policy favoring arbitral dispute resolution support the district court’s conclusion that vacatur of its Confirmation Judgment would violate U.S. public policy. These considerations correspondingly support the district court’s decision against extending comity to the [relevant] Bolivian orders.

The Tenth Circuit also rejected GCC’s arguments that the district court erred by ordering GCC to turnover property held abroad by third parties, and other challenges to turnover orders.

Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua S.A.B. de C.V., No. 21-1196 (10th Cir. Jan. 10, 2023)

The Supreme Court of Wyoming recently rejected claims by a party that had largely prevailed in arbitration, but asserted that it should have received its fees, and that the arbitrator incorrectly decided several issues.

Fork Road, LLC owned part of a building that it purchased from JAMD, LLC. Mountain Business Center, LLC (MBC) was a tenant in that building. JAMD requested, on behalf of Fork Road, that MBC provide information about subtenants. MBC provided certain information, but withheld other information. Fork Road and MBC ended up in arbitration over that withholding and various other issues related to MBC’s lease. The arbitrator ruled in favor of MBC on certain claims and Fork Road on other claims, but ultimately awarded MBC nearly $24,000. MBC argued that it was the prevailing party and sought its fees, but the arbitrator declined to award them because this was a “mixed outcome” case, in which both parties prevailed on certain claims.

MBC challenged the award, arguing that the arbitrator had exceeded his authority because one of Fork Road’s witnesses had “waived” certain claims by Fork Road, but the arbitrator had nevertheless decided those claims. MBC also argued that it was the prevailing party and therefore entitled to fees and that the arbitrator erred by not applying the “first to breach rule” and holding that Fork Road had been the first to materially breach the lease.

The Supreme Court of Wyoming rejected MBC’s claims noting, “MBC cite[d] no authority that testimony by a lay witness on the substantial acts at issue may be used by party to limit its opponent’s claims.” It also held that the arbitrator did not have to award MBC fees even if it was true, as MBC argued, that MBC had prevailed on the “central issue” in the case.  The court also held that the arbitrator did not commit manifest error by not applying the “first to breach rule,” where MBC had stayed in the building after Fork Road allegedly breached the lease.

Mountain Business Center, LLC v. Fork Road, LLC, No. 2-22 WY 147 (Wyo. Nov. 23, 2022).

The Fifth Circuit affirmed judgments confirming an arbitration award despite concluding that the lower courts should have considered one of the party’s claims that a dispute decided by the arbitrator was beyond the scope of arbitration.

Attorney Jon Amberson represented his then father-in-law, James McAllen, a rancher, in litigation related to an oil company burying toxic chemicals on McAllen’s ranch. Amberson’s engagement letters included arbitration clauses. Disputes arose about Amberson’s representation, and Amberson and McAllen arbitrated those disputes, as required by the engagement letters.

A controversy also arose about a separate transaction involving Amberson and McAllen (Cannon Grove Transaction). McAllen purportedly used an entity Amberson created (ANR) for a transaction in which McAllen transferred $4.5 million to ANR. McAllen later asked for his money back, but Amberson refused, claiming that the money had been a gift.

Amberson moved to compel arbitration of all the claims between him and McAllen except for the Cannon Grove Transaction dispute. A Texas state court ordered Amberson and McAllen to arbitrate all their disputes, including the Cannon Grove Transaction Dispute.

Amberson and McAllen then arbitrated all their disputes. McAllen prevailed and moved to confirm a substantial award in his favor. While McAllen’s motion to confirm was pending, Amberson and ANR filed for bankruptcy. McAllen then sought to confirm the award in bankruptcy court. The bankruptcy court concluded that it could not consider Amberson’s argument that the Cannon Grove Transaction dispute should not have been arbitrated. On appeal, a federal district court affirmed the bankruptcy court judgment.

Amberson then appealed to the Fifth Circuit, which affirmed, albeit on different grounds. The Fifth Circuit concluded that the bankruptcy court erred by holding that it could not consider Amberson’s argument that the Cannon Grove Transaction dispute should not have been arbitrated. It explained that the Texas General Arbitration Act “allows a party to renew arguments in a motion to vacate that were rejected prior to arbitration about the scope of the arbitration agreement.” Thus, the Fifth Circuit held that “Amberson was entitled . . . to have the argument,” “that the arbitrator had exceeded his powers in resolving the Cannon Grove claim” “considered” by the bankruptcy and district courts. Nevertheless, the Fifth Circuit rejected Amberson’s arguments that the Cannon Grove Transaction dispute was not arbitrable on the merits. The Fifth Circuit therefore affirmed the judgments confirming McAllen’s award.

In the Matter of: Jon Christian Amberson, No. 21-50960 (5th Cir. Nov. 18, 2022).

The D.C. Circuit affirmed the denial of a stay regarding the enforcement of an international arbitration award under the New York Convention.

In 2010, the country of Moldova allegedly failed to pay energy bills to Energoalliance, a Ukrainian company. LLC SPC Stileks acquired Energoalliance’s claim against Moldova and initiated arbitration in Europe. In 2013, an arbitration tribunal in Paris ruled against Moldova and Stileks moved to confirm the award in the United States under the New York Convention.

Proceedings in Europe continued while Stileks’ U.S. motion to confirm was litigated. The decision in Stileks’ favor was reversed by a French court, then reinstated, then appealed again. That appeal remains pending and further proceedings in Europe are likely after the appeal.

In the proceedings in the United States, the district court confirmed Stileks’ award and the D.C. Circuit affirmed (except for an issue regarding the currency of the judgment). Moldova then moved for a stay of proceedings in light of the uncertainty regarding the underlying proceedings in Europe. The district court denied the stay and Moldova appealed.

The D.C. Circuit affirmed, noting that the two most important factors in its decision were supporting “the expeditious resolution of disputes and the avoidance of protracted and expensive litigation” and “the status of the foreign proceedings and the estimated time for those proceedings to be resolved.” Both of those factors weighed against a stay. The underlying dispute had been ongoing for more than a decade and there was no immediate timeline for an end to the European actions.

The D.C. Circuit also affirmed — on the alternate basis — that the law of the case doctrine precluded a stay because the D.C. Circuit had denied a stay in a prior ruling upholding the award.

LLC SPC Stileks v. The Republic of Moldova, No. 21-7141 (D.C. Cir. Dec. 21, 2022).