WALEED KHALID ABU AL-WALEED AL HOOD AL-QARQANI; AHMED KHALID ABU AL-WALEED AL HOOD AL-QARQANI; SHAHA KHALID ABU AL-WALEED AL HOOD AL-QARQANI; NAOUM AL-DOHA KHALID ABU AL-WALEED AL HOOD AL-QARQANI; NISREEN MUSTAFA JAWAD ZIKRI, Petitioners-Appellants, v. CHEVRON CORPORATION; CHEVRON USA INC., Respondents-Appellees.
No. 19-17074
United States Court of Appeals for the Ninth Circuit
August 12, 2021
D.C. No. 4:18-cv-03297-JSW
Jeffrey S. White, District Judge, Presiding
Argued and Submitted October 19, 2020
San Francisco, California
Filed August 12, 2021
Opinion by Judge Miller
SUMMARY**
Arbitration
Affirming the district court‘s judgment on a petition for enforcement of a foreign arbitral award against Chevron Corporation, the panel held that the parties did not enter into a binding agreement to arbitrate, and enforcement under the New York Convention therefore should be denied.
In 1949, the government of Saudi Arabia transferred land to an official, who leased it to an affiliate of what later became Chevron. The official‘s heirs claimed that Chevron owed them rent. They contended that an arbitration clause contained in a separate 1933 land concession agreement between Saudi Arabia and Chevron‘s predecessor, Standard Oil Company of California, applied to their dispute. An Egyptian arbitral panel agreed and awarded them $18 billion. The district court found that the parties had never agreed to arbitrate and therefore held that it lacked jurisdiction over the heirs’ petition for enforcement of the award.
Agreeing with the Second Circuit, and disagreeing with the Eleventh Circuit, the panel held that the absence of an agreement to arbitrate was a reason to deny enforcement on the merits, rather than to dismiss for lack of subject-matter jurisdiction. The panel held that so long as a party makes a non-frivolous claim that an arbitral award is covered by the New York Convention, the district court must assume subject-matter jurisdiction.
The panel held that as to respondent Chevron USA, Inc., which was not named in the Egyptian arbitral award, the heirs advanced no non-frivolous theory of enforcement. The panel therefore affirmed the district court‘s dismissal for lack of subject-matter jurisdiction as to Chevron USA.
The panel held that as to Chevron Corporation, the district court correctly concluded that there was no binding agreement to arbitrate between the parties. First, the heirs could not enforce the 1933 concession agreement against Chevron directly because the agreement was signed by Saudi Arabia, not the heirs, and Chevron‘s rights and obligations under the 1933 agreement were extinguished long ago. Second, the 1949 deed did not incorporate by reference the arbitration clause contained in the 1933 agreement. The panel held that the proper disposition was not dismissal but denial of the enforcement petition on the merits. Nonetheless, because there was no reason to remand to the district court simply to direct it to affix a new label to its order, the panel affirmed the district court‘s judgment.
Edward C. Chung (argued), Chung Malhas & Mantel PLLC, Seattle, Washington, for Petitioners-Appellants.
Thomas G. Hungar (argued), Gibson Dunn & Crutcher LLP, Washington, D.C.; Charles J. Stevens and Stephen Henrick, Gibson Dunn & Crutcher LLP, San Francisco, California; Randy M. Mastro, Anne Champion, and Akiva Shapiro, Gibson Dunn & Crutcher LLP, New York, New York; Christian Leathley and Scott Balber, Herbert Smith Freehills New York LLP, New York, New York; for Respondents-Appellees.
OPINION
MILLER, Circuit Judge:
In 1949, the government of Saudi Arabia transferred certain land in that country to an official named Khalid Abu Al-Waleed Al-Hood Al-Qarqani, who leased it to an affiliate of what later became Chevron Corporation. Five of Al-Qarqani‘s heirs now claim that Chevron owes them billions of dollars in rent. The heirs contend that an arbitration clause contained in a separate 1933 agreement between Saudi Arabia and Chevron‘s predecessor, Standard Oil Company of California (SOCAL), applies to their dispute. An Egyptian arbitral panel agreed and awarded them $18 billion. The heirs petitioned for enforcement of that award, but the district court found that the parties had never agreed to arbitrate and therefore held that it lacked jurisdiction over the petition. We agree with the district court that the parties did not enter into a binding agreement to arbitrate. Although the absence of an agreement is a reason to deny enforcement
In 1933, SOCAL and the government of Saudi Arabia entered a land concession agreement for oil exploration and extraction. Article 25 of the agreement authorized SOCAL “to obtain from the owner of the land the surface rights of the lands which the Company deems necessary for use in its works.” In return, SOCAL would pay Saudi Arabia an annual rent and a portion of its proceeds and “pay to the occupant of the lands an allowance.”
The 1933 concession agreement contained an arbitration clause. Specifically, article 31 required Saudi Arabia and SOCAL to arbitrate “any doubt, difficulty or difference . . . in interpreting th[e] Agreement, the execution thereof or the interpretation or execution of any of it or with regard to any matter that is related to it or the rights of either of the two parties or the consequences thereof.” The clause provided that any arbitration would take place in the Hague, unless the parties agreed on a different location, and it prescribed certain procedures for the appointment of arbitrators.
Later that year, SOCAL assigned its rights under the concession agreement to a wholly owned subsidiary, California Arabian Standard Oil Company, which later became Arabian American Oil Company (Aramco). A few years later, SOCAL surrendered its majority ownership interest in that subsidiary; by 1948, SOCAL was a minority shareholder owning only 30 percent of Aramco.
The next year, Saudi Arabia transferred the ownership of certain plots of land to Al-Qarqani and others. The 1949 deed transferring the land also contained a lease agreement between Al-Qarqani, the other land recipients, and Aramco
In the 1970s and 1980s, Saudi Arabia nationalized Aramco, and in 1990, Aramco was dissolved. In the meantime, SOCAL changed its name to Chevron Corporation.
In 2014, several of Al-Qarqani‘s heirs initiated arbitration proceedings against Chevron before the International Arbitration Center (IAC) in Cairo, claiming rents due under the 1949 deed. Chevron objected that it was not a party to the relevant contracts, that there was no valid agreement to arbitrate, and that the 1933 concession agreement upon which the heirs relied did not authorize IAC arbitration in Cairo. Despite those objections, the arbitration proceeded. Soon thereafter, Chevron stopped participating in the arbitration, citing a series of irregularities in the composition of the arbitral panel. The proceedings continued in Chevron‘s absence, but the irregularities persisted. For example, the IAC cycled through five arbitrators and two umpires over the course of one year. And after the initial arbitral panel dismissed the dispute, the panel was reformulated and the dismissal withdrawn. A new arbitral panel then issued an award ordering Chevron to pay the heirs $18 billion.
The heirs petitioned to enforce the award in the Northern District of California, naming as respondents both Chevron Corporation and Chevron U.S.A. Inc. They invoked the
The district court dismissed the petition for lack of subject-matter jurisdiction. The court reasoned that one of “the Convention‘s jurisdictional requirements” is that “there is an ‘arbitration agreement under the terms of the Convention.‘” (quoting Bothell v. Hitachi Zosen Corp., 97 F. Supp. 2d 1048, 1053 (W.D. Wash. 2000)). Emphasizing that “[t]he original agreement to arbitrate occurred between third parties, not the current parties before this Court,” the court stated that “[p]etitioners make no persuasive or legally coherent argument that the parties . . . are legally obligated by the third party signatories to the original agreement.” In addition, the court dismissed the petition as to Chevron U.S.A. because that entity “was not a named . . . party in the arbitration proceedings.”
The district court went on to explain “that numerous procedural infirmities would independently preclude confirmation of the arbitral award.” For example, the court
The heirs now appeal. Or do they? The petition to enforce the arbitral award listed several dozen individuals as petitioners, but the notice of appeal names only five of them, along with the “Heirs of Khalid Abu al-Waleed al-Hood al-Qarqani,” a group whose members the notice of appeal does not identify.
For those appellants who are properly before us, we begin by considering the district court‘s conclusion that it lacked subject-matter jurisdiction. The district court was correct that the existence of a binding agreement to arbitrate is a prerequisite to enforcing an arbitration award under the New York Convention. The Convention‘s implementing legislation provides that a court presented with a petition to confirm an arbitral award “shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the . . . Convention.”
First, article II of the Convention provides that signatory states will “recognize an agreement in writing under which the parties undertake to submit [claims] to arbitration.” N.Y. Convention art. II(1). The term “agreement” includes “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” Id. art. II(2). And article IV provides that a party seeking to enforce an arbitral award must produce “[t]he original agreement referred to in article II or a duly certified copy thereof.” Id. art. IV(1)(b); see China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 292 (3d Cir. 2003) (Alito, J., concurring). Accordingly, without an agreement to arbitrate, the Convention does not provide for enforcement.
Second, article V of the Convention bars enforcement of an award if the underlying arbitration agreement is invalid or the dispute is not arbitrable under the law of the country in which enforcement is sought. N.Y. Convention art.
Because of the Convention‘s “mandatory language,” the Eleventh Circuit has held “that the party seeking confirmation of an award falling under the Convention must” establish the existence of a written agreement to arbitrate “to establish the district court‘s subject matter jurisdiction.” Czarina, LLC v. W.F. Poe Syndicate, 358 F.3d 1286, 1292 (11th Cir. 2004); see also Sphere Drake Ins. PLC v. Marine Towing, Inc., 16 F.3d 666, 669 (5th Cir. 1994). The Second Circuit has rejected that view, reasoning that the existence of a written agreement to arbitrate is a merits question that does not affect subject-matter jurisdiction. Sarhank Grp. v. Oracle Corp., 404 F.3d 657, 660 & n.2 (2d Cir. 2005).
We agree with the Second Circuit. It does not follow that simply because a statute uses mandatory language, it limits the subject-matter jurisdiction of a district court. The Supreme Court has “rejected the notion that all mandatory prescriptions, however emphatic, are properly typed jurisdictional.” V.L. v. E.L., 577 U.S. 404, 409 (2016) (per curiam) (quoting Gonzalez, 565 U.S. at 146). Instead, the Court has cautioned that only when Congress “clearly states
The requirement that a binding arbitration agreement exist is not jurisdictional because it is not contained in or incorporated by any statute “clearly labeled jurisdictional” or “located in a jurisdiction-granting provision.” Garcia, 918 F.3d at 1006 (quoting Leeson v. Transamerica Disability Income Plan, 671 F.3d 969, 976–77 (9th Cir. 2012)). The operative jurisdictional provision is
In the abstract, sections 202 and 203 could be read to mean that a dispute does not “aris[e] out of a legal relationship“—and therefore is not one “falling under the Convention“—if the parties have not entered into a binding agreement to arbitrate. But the phrase “arising out of” parallels the more familiar grant of federal-question jurisdiction in
The same principle applies here. Neither section 202 nor section 203 requires a court to assess an award against the Convention‘s requirements before exercising jurisdiction. Instead, so long as a party makes a non-frivolous claim that an arbitral award is covered by the Convention, the court “must assume subject matter jurisdiction and hear the merits of the case.” Sarhank, 404 F.3d at 660. If the court concludes that the award is not covered, the appropriate disposition is to deny enforcement, not to dismiss the petition for lack of subject-matter jurisdiction.
Although the requirement of a non-frivolous claim is a low bar, the heirs have managed to clear it only in part. In particular, as to Chevron U.S.A., the heirs have advanced no non-frivolous theory of enforcement. Chevron U.S.A. is not named in the arbitral award the heirs seek to enforce. See
By contrast, the heirs’ claim that the award arose out of a legal relationship or arbitration agreement with Chevron Corporation is not frivolous. But as we will explain, it is also not meritorious. We review de novo the district court‘s decision to deny enforcement of the arbitral award, Polimaster Ltd. v. RAE Sys., Inc., 623 F.3d 832, 836 (9th Cir. 2010), and we review its factual findings for clear error, Stover v. Experian Holdings, Inc., 978 F.3d 1082, 1085 (9th Cir. 2020). We agree with the district court that there was no binding agreement to arbitrate between the parties. We therefore need not consider the alternative grounds identified by the district court for denying enforcement, including the serious irregularities in the arbitral proceedings.
The heirs have advanced two theories of why they may invoke the arbitration clause contained in the 1933 concession agreement between Saudi Arabia and SOCAL. First, the heirs contend that they can enforce the 1933 concession agreement against Chevron directly. This theory fails because the agreement was signed by Saudi Arabia, not the heirs, and the heirs have not demonstrated that they may assert Saudi Arabia‘s interest in it. See Britton v. Co-Op Banking Grp., 4 F.3d 742, 744 (9th Cir. 1993) (“An entity that is neither a party to nor agent for nor beneficiary of the contract lacks standing to compel arbitration.“). To be sure, the lands at issue were the subject of the 1933 concession agreement, and Al-Qarqani received a partial ownership interest in some of those lands. But there is no evidence that the partial transfer of ownership rights carried with it the
Even if the heirs could establish a right to enforce the arbitration clause, the district court did not clearly err in finding that Chevron‘s rights and obligations under the 1933 concession agreement were extinguished long ago. Chevron‘s predecessor, SOCAL, was a signatory to the 1933 agreement. But by the time Al-Qarqani obtained any interest in the lands, SOCAL had assigned its rights and obligations to California Arabian Standard Oil Company (which later became Aramco) and relinquished control of Aramco. SOCAL therefore was no longer bound by the 1933 agreement, so the heirs cannot enforce the agreement‘s arbitration clause against Chevron.
The heirs object that Chevron has not produced a formal document memorializing the assignment to Aramco. “[G]eneral contract principles dictate that to prove an effective assignment, the assignee must come forth with evidence that the assignor meant to assign rights and obligations under the contract[].” Britton, 4 F.3d at 746. But while “[a] contract provision specifying [an assignment] is evidence of such an intent,”
Second, the heirs contend that the 1949 deed, which contained the lease agreement between Al-Qarqani and Aramco, incorporated the 1933 concession agreement‘s arbitration clause by reference. The parties dispute what law governs our analysis of that issue: Chevron invokes federal
Finally, we reject the heirs’ contention that Chevron is precluded from resisting enforcement of the award because it did not first appeal to the arbitral tribunal or move to vacate the award. The heirs rely on rules applicable to certain domestic arbitrations under the Federal Arbitration Act. See
We conclude that the district court reached the correct result but, with respect to Chevron Corporation, incorrectly attached a jurisdictional label to what should have been a decision on the merits. The Supreme Court has held that we may affirm a district court‘s judgment if the court mistakenly
All pending motions are denied as moot.
AFFIRMED.