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Arbitration / Court Decisions

Second Circuit Affirms Confirmation of Arbitration Award Issued Under Cyprus-Libya Bilateral Investment Treaty

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The Second Circuit Court of Appeals recently affirmed the confirmation of an arbitration award issued under a bilateral investment treaty between Libya and Cyprus. We previously described the underlying Southern District of New York opinion confirming the award in a prior post.

On appeal to the Second Circuit, Libya primarily argued that the district court erred by declining to independently review the arbitrability of the claims involved before confirming the final award. The Second Circuit disagreed with Libya’s contention that a de novo standard should have been applied to review the arbitral tribunal’s decision because Libya “clearly and unmistakably” agreed to submit questions of arbitrability to the arbitrator. Libya indisputably agreed to arbitrate such issues when it signed the bilateral investment treaty providing Cypriot investors with the option of resolving disputes under the arbitral rules of the International Chamber of Commerce (ICC).

In so holding, the court noted the consistent line of cases holding that “when one party is a signatory to a bilateral investment treaty containing a provision for arbitration, the treaty constitutes a standing offer to arbitrate disputes covered by the treaty, and a foreign investor’s written demand for arbitration completes the agreement in writing to submit the dispute to arbitration.” The bilateral investment treaty simply creates “a framework through which foreign investors can initiate arbitration against parties to the Treaty. Accordingly, all that is necessary to form an agreement to arbitrate is for one party to be a [bilateral investment treaty] signatory and the other to consent to arbitration of an investment dispute in accordance with the Treaty’s terms.”

Having determined that a valid arbitration agreement was formed upon submission of the claim to the arbitral tribunal of the ICC by the Cypriot investor, the court turned next to the question of arbitrability of the dispute. While courts presume that questions of arbitrability are for the court to decide, not the arbitrator, that presumption is overcome where the record “supplies clear and unmistakable evidence that the parties agreed to submit the issue to arbitration.” Such “clear and unmistakable” evidence of intent can be provided by the incorporation of rules that empower an arbitrator to decide issues of arbitrability. To determine whether such rules have been incorporated into the parties’ agreement, the courts look to both the text of the relevant bilateral investment treaty and the procedural rules adopted by the parties at the outset of the arbitration.

Here, the terms of the bilateral investment treaty authorized investors to submit a dispute to the ICC. ICC rules presumptively apply to disputes submitted to the ICC. Accordingly, by signing the bilateral investment treaty, “Libya clearly and unmistakably agreed to send questions of arbitrability” to the arbitrator. As a result, the district court was required to defer to the arbitrator’s determination of the arbitrability of the parties’ dispute. The Second Circuit therefore affirmed the district court’s decision declining de novo review and confirmation of the ICC tribunal’s arbitration award.

Olin Holdings Ltd. v. State of Libya, No. 22-825 (2d Cir. July 12, 2023).

Southern District of New York Dismisses Petition to Confirm $145M Foreign Arbitration Award for Lack of Personal Jurisdiction

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The Southern District of New York recently dismissed a petition to confirm a $145 million arbitration award rendered in Hong Kong based on lack of personal jurisdiction.

Zhongzhi Hi-Tech Overseas Investment Ltd. obtained a $145 million arbitration award in Hong Kong against Dr. Vincent Wenyong Shi related to Dr. Shi’s and another company’s alleged failure to make contractually required payments.

Hi-Tech moved to confirm that award in the Southern District of New York. Dr. Shi moved to dismiss, claiming a lack of personal jurisdiction. The court granted the motion, holding that New York’s long-arm statute was not met and that jurisdiction did not comport with due process.

Hi-Tech argued that New York’s long-arm statute was met based on Dr. Shi’s (1) execution of a contract providing that New York law would govern that contract, (2) Dr. Shi’s defense of a lawsuit pending in the Southern District, and (3) Dr. Shi’s role as an executive of a company listed on the New York Stock Exchange. The district court rejected these arguments.

First, it noted that the contract had been amended and that its choice-of-law provision had been replaced by a new clause providing that Hong Kong law would govern. The original choice-of-law provision therefore provided no basis for jurisdiction, and Hi-Tech conceded that a choice-of-law provision “does not equate to consent to jurisdiction” in any event.

Second, Dr. Shi was involved in defending a suit in the Southern District against a company he was involved in, but “a party’s consent to jurisdiction in one case extends to that case alone” and therefore did not provide a basis for jurisdiction against Dr. Shi in this case.

Third, although a company Dr. Shi was a leader in had been listed on the New York Stock Exchange, having a company listed on the NYSE is not sufficient to confer jurisdiction. Even if it was, the company had been delisted and there was thus no basis for jurisdiction.

With respect to due process, the court noted that New York and the United States had little interest in the dispute and that Dr. Shi had little or no reason to expect to be hailed into court there.

Zhongzhi Hi-Tech Overseas Investment Ltd. v. Wenyong Shi, No. 1:22-cv-06977 (S.D.N.Y. July 17, 2023).

First Circuit Holds That Motion to Reconsider Appealable Interlocutory Order Denying Motion to Compel Arbitration Is Not Appealable

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In Powers v. Receivables Performance Management, LLC, the First Circuit Court of Appeals considered the defendant’s interlocutory appeal of the denial of a motion to reconsider an underlying denial of its motion to compel arbitration.

The case, a putative class action arising from defendant Receivables Performance Management’s (RPM) alleged improper debt collection practices, was brought in Massachusetts state court under the Massachusetts Consumer Protection Act. RPM moved to compel arbitration, which the state court denied. RPM then removed the action to federal court, where RPM again moved to compel arbitration. The district court treated this as a motion for reconsideration of the state court order denying arbitration, and RPM did not object. The district court denied the motion for reconsideration, and RPM appealed.

On appeal, the First Circuit began its analysis by noting that even where a decision qualifies as an appealable interlocutory order, a motion to reconsider that underlying decision is not itself appealable “absent some newly available evidence, law, or a new stage of the proceedings.” But here, RPM had based its motion to reconsider on a “manifest error of law” rather than new evidence or law. Noting that RPM cited no case law to the contrary, the court concluded that while “manifest error of law” could serve as valid grounds for the district court to reconsider a motion to compel arbitration, “manifest error of law” does not provide a basis for appellate jurisdiction over that interlocutory reconsideration decision the way “newly available evidence or law” can. The First Circuit dismissed RPM’s appeal of the denial of its motion to reconsider accordingly.

Powers v. Receivables Performance Management, LLC, No. 22-1500 (1st Cir. June 8, 2023).

Third Circuit Affirms Judgment Allowing Creditors of Venezuela Who Obtained Arbitration Awards to Attach U.S. Assets of Venezuela’s National Oil Company

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The Third Circuit Court of Appeals has again allowed creditors of Venezuela to attach assets belonging to Venezuela’s national oil company to satisfy arbitration awards against Venezuela. The Third Circuit rejected Venezuela’s arguments that it was entitled to sovereign immunity and that changes in Venezuela’s government negated a prior holding that its national oil company was its alter ego.

To make a long story short, Venezuela allegedly breached various contracts with foreign creditors. A number of those creditors initiated arbitration and obtained awards.

One such creditor, Crystallex International Corp., confirmed a $1.2 billion award in the U.S. District Court for the District of Columbia and then moved to attach assets held in the United States by a subsidiary of Petróleos de Venezuela, S.A. (PDVSA), Venezuela’s national oil company, to satisfy its award. The U.S. District Court for the District of Delaware held that PDVSA was Venezuela’s alter ego and allowed the attachment. The Third Circuit affirmed in a 2019 decision.

Six other creditors then invoked Crystallex’s strategy by seeking to attach assets held by PDVSA to satisfy their arbitration awards. Venezuela objected. It claimed that the Foreign Sovereign Immunities Act (FSIA), which generally requires the United States to recognize the sovereign immunity of foreign nations, precluded the creditors’ attempts to satisfy arbitration awards against Venezuela through U.S. courts. Venezuela also claimed that changes in its government since 2019 resulted in PDVSA no longer being Venezuela’s alter ego.

The Third Circuit rejected Venezuela’s arguments. It noted that the FSIA is not absolute, that the FSIA allows U.S. courts to issue writs of attachment to an entity’s nonimmune assets where that entity is the alter ego of a foreign state, and that PDVSA remained Venezuela’s alter ego.

The Third Circuit analyzed the Bancec factors to determine alter ego status: (1) the level of economic control by the government; (2) whether the entity’s profits go to the government; (3) the degree to which government officials manage the entity or otherwise have a hand in its daily affairs; (4) whether the government is the real beneficiary of the entity’s conduct; and (5) whether adherence to separate identities would entitle the foreign state to benefits in U.S. courts while avoiding its obligations.

The Third Circuit noted that Venezuela still “exerts significant economic control over PDVSA,” that all of PDVSA’s profits go to the Venezuelan government, that “Venezuelan officials are vital to management of PDVSA and maintain a strong presence in its daily affairs,” that “PDVSA exists to benefit Venezuela,” and that Venezuela “derives significant benefits from the U.S. judicial system” because “PDVSA enjoys the benefits and protections of United States law.”

OI European Group B.V. v. Bolivarian Republic of Venezuela, Nos. 23-1647, 23-1648, 23-1649, 23-1650, 23-1651, 23-1652, 23-1781 (3d Cir. July 7, 2023).

Federal Circuit Vacates Arbitrator’s Decision Removing Federal Employee From Position, Remands for Further Review

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The Federal Circuit Court of Appeals vacated an arbitrator’s final decision upholding the petitioner’s removal from a position with the Federal Bureau of Prisons, finding that the arbitrator failed to conduct an independent analysis to determine if alternative sanctions, other than removal, were appropriate.

The petitioner, Jacquana Williams, was employed by the BOP as a correctional officer at a Texas federal correctional complex. She had a relationship with a former prisoner who she was aware had been incarcerated but did not know had been in federal custody. The two became engaged and had a child. The BOP placed Williams on administrative leave and conducted an internal investigation, after which it determined that she had engaged in improper contact with a former inmate and did not timely report the contact. After she was removed from her position, Williams challenged the removal with an arbitrator per the established grievance procedure. The arbitrator sustained the improper contact charge, rejected the failure-to-timely-report charge, and upheld the penalty of removal.

The court of appeals vacated the arbitrator’s ruling, concluding that because the arbitrator did not sustain all of the BOP’s charges, he was required to independently determine the maximum reasonable penalty to be imposed on Williams. The court then found the arbitrator failed to conduct the required independent analysis, vacated the decision of removal, and remanded the matter with direction to the arbitrator to “pay close attention to the adequacy of lesser sanctions.”

Williams v. Federal Bureau of Prisons, No. 22-1575 (Fed. Cir. July 6, 2023).