The factual and procedural background of this case can be found here. In sum, beginning in the 1990s, the appellants, a group of Brazilian companies (collectively, “CBF”) entered into a series of contracts with Primetrade AG, a Swiss company, for the purchase and sale of pig iron. Primetrade transferred its assets, including the contracts with CBF, to another Swiss company, Steel Base Trade, AG (“SBT”), which “began operating with the same officers and directors as Primetrade AG and at the same offices.” AMCI International Gmb (“AMCI”) later acquired SBT. The following year, CBF entered into additional purchase and sale contracts with SBT that did not purport to bind any assigns or successors-in-interest. The contracts each contained an arbitration clause which provided for arbitration in Paris. In 2008, as commodity prices fell, SBT defaulted on its obligations under the contracts with CBF. CBF then commenced arbitration. During the course of arbitration, CBF alleged that SBT stalled the arbitration while it was fraudulently transferring its assets to Prime Carbon, a shell company formed and operated by the principals of SBT. In 2010, SBT filed for bankruptcy in Switzerland, and in 2011, SBT’s bankruptcy administrator informed the arbitration panel that the company had insufficient funds to participate in the arbitration and conceded CBF’s claims against SBT. The arbitration panel later issued a final award in favor of CBF for the amount of $48 million plus interest and costs. The award further held that CBF “did not introduce sufficient evidence . . . to demonstrate the existence of fraud in the bankruptcy proceedings.” In 2013, CBF commenced an action in New York federal court against various individuals and corporate entities alleged to be the “alter egos” and “successors in interest” of SBT. CBF sought to enforce the award and to assert various state law fraud claims relating to the underlying dispute. The New York district court dismissed the action because: (i) the award had not been first confirmed by a court of competent jurisdiction; and (ii) the fraud claims were barred by the doctrine of issue preclusion because the arbitration panel had denied similar claims. The appellants appealed.
On appeal, the Second Circuit vacated the district court’s judgment on two grounds: (i) the lower court erred by requiring the appellant, an award debtor, to bring a confirmation action prior to enforcement in a secondary jurisdiction; and (ii) the fraud claims were not barred by the doctrine of issue preclusion.
First, the Second Circuit held that there was no requirement to confirm an arbitration award at the arbitral seat of the arbitration before enforcing it in a secondary jurisdiction. The Second Circuit explained that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) eliminated the “double exequatur” requirement, which mandated confirmation at the seat as a precondition to the enforcement of arbitral awards abroad. Under the Convention, the Second Circuit noted that CBF needed only to commence a summary, single-step proceeding to achieve recognition and enforcement of the award in a court in the United States. Thus, the Second Circuit held that the district court erred in holding that appellants were required to confirm their foreign arbitral award at the seat of the arbitration before they would be allowed to enforce it.
Next, the Second Circuit noted that the liability of the appellees for satisfaction of the arbitration award would be determined under the applicable law in the New York district court. Thus, as there were further legal and factual inquiries on the question of veil-piercing and alter ego liability, the Second Circuit remanded the case back to the district court to consider the issues under the applicable law in the New York district court.
Finally, with respect to issue preclusion, the Second Circuit noted that the doctrine is applicable to issues resolved by an earlier arbitration, but that the doctrine’s application is constrained by equity. The Third Circuit then noted that CBF claimed that it was denied a full and fair opportunity to litigate the fraud claims before the arbitration panel because the appellees deliberately misled the panel as to the extent of their fraud. Thus, the Second Circuit held that the grant of issue preclusion was inappropriate and that CBF should be afforded the opportunity to conduct discovery on its fraud claims, and that the appellees may be given the opportunity to re-raise the issue preclusion issue after discovery at the district court’s discretion.
CBF Indústria De Gusa S/A, et al. v. AMCI Holdings Inc., et al., No. 15-1133 (2nd Cir. Mar. 2, 2017).
This post written by Jeanne Kohler.
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