986 F. Supp. 2d 308
S.D.N.Y.2013Background
- Offshore entered into a Stock Purchase Agreement on December 29, 2008 with KNOC and Ecopetrol S.A. for purchase of Offshore’s subsidiary stock and related indemnities.
- An escrow fund of $150 million was established with Morgan Stanley Trust to secure indemnification claims under the SPA, with disbursement governed by an Escrow Agreement.
- An interim arbitration award ordered Offshore to reimburse the Purchasers for $75,308,179.03 to Savia (Peruvian tax liabilities), which Offshore later attempted to pay from the Escrow Amount per its instruction.
- Morgan Stanley refused to release funds citing the Escrow Agreement procedures and unresolved objection by Offshore, leading Offshore to file a declaratory judgment action in this Court.
- The Purchasers seek to stay or dismiss the action to permit arbitration on whether Offshore must pay the Interim Award independently of the Escrow Amount, while Offshore seeks summary judgment on its declaratory judgment claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitrability of Offshore’s payment dispute should be decided by arbitrators or the court | Offshore contends arbitrability is a matter for the Escrow Agreement (not the SPA) and not within the SPA’s arbitration clause. | Purchasers argue the dispute implicates the SPA’s broad arbitration clause and should be decided by arbitrators. | Arbitrability is delegated to arbitrators; stay pending arbitration is required. |
| Whether the Purchasers’ claim to pay the Interim Award from the Escrow Amount is within the SPA’s arbitration clause | Offshore asserts the claim falls under the Escrow Agreement and not the SPA’s arbitration clause. | Purchasers contend the dispute implicates SPA provisions (7.4, 2.3(b)) and thus is arbitrable. | Dispute implicates the SPA; must be decided by arbitrators. |
| Whether the Escrow and forum provisions conflict with the SPA and how to harmonize them | Offshore argues Escrow’s forum clause controls and supersedes the SPA arbitration. | Purchasers argue the SPA’s broad arbitration clause prevails and arbitration should govern. | Arbitration clause in the SPA controls; forum clause does not override it. |
| Whether the action should be stayed or dismissed and the summary judgment should be denied without prejudice | Offshore seeks summary judgment on its declaratory judgment claim. | Purchasers urge stay/dismissal to allow arbitration on arbitrability and merits. | Action stayed or dismissed pending arbitrators’ decision; summary judgment denied without prejudice. |
Key Cases Cited
- Contec Corp. v. Remote Solution Co., 398 F.3d 205 (2d Cir.2005) (clear and unmistakable evidence to delegate arbitrability to arbitrator)
- Shaw Grp. Inc. v. Triplefine Int’l Corp., 322 F.3d 115 (2d Cir.2003) (expansive arbitration clause implying arbitrability)
- Applied Energetics, Inc. v. NewOak Capital Mkts., LLC, 645 F.3d 522 (2d Cir.2011) (subsequent agreement controlling where in conflict with prior arb clause)
- Bank Julius Baer & Co. v. Waxfield Ltd., 424 F.3d 278 (2d Cir.2005) (forum selection clause insufficient to override broad arbitration clause)
- Goldman, Sachs & Co. v. Golden Empire Schs. Fin. Auth., 922 F. Supp. 2d 435 (S.D.N.Y.2013) (forum selection clause aided interpretation of arbitration necessity)
- Teletech Europe B.V. v. Essar Servs. Mauritius, 83 A.D.3d 511 (App.Div.2011) (escrow dispute differing from arbitration-absence of direct release obligation)
- Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, 66 A.D.3d 495 (App.Div.2009) (appellate division on arbitration-related issues)