CBF INDÚSTRIA DE GUSA S/A, et al. v. AMCI HOLDINGS, INC., et al.
Docket Nos. 15-1133-cv(L), 15-1146-cv(CON)
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
Decided: March 2, 2017
Petition for Rehearing Granted: March 2, 2017
August Term, 2015 (Argued: March 2, 2016; Final Briefs Submitted: October 5, 2016)
Plaintiffs-Appellants,
v.
AMCI HOLDINGS, INC., AMERICAN METALS & COAL INTERNATIONAL, INC., K-M INVESTMENT CORPORATION, PRIME CARBON GMBH, PRIMETRADE, INC., HANS MENDE, FRITZ KUNDRUN,
Defendants-Appellees.1
Appeals from two judgments of the United States District Court for the Southern District of New York (Sweet, J.) dismissing both the initial action to enforce and the subsequent action to confirm a foreign arbitral award brought by plaintiffs-appellants CBF Indústria de Gusa S/A, Da Terra Siderúrgica LTDA, Fergumar— Ferro Gusa do Maranhão LTDA, Ferguminas Siderúrgica LTDA, Gusa Nordeste S/A, Sidepar—Siderúrgica do Pará S/A, and Siderúrgica União S/A (collectively, “appellants” or “award-creditors“) against defendants-appellees AMCI Holdings, Inc., American Metals & Coal International, Inc., K-M Investment Corporation, Prime Carbon GmbH, Primetrade, Inc., Hans Mende, and Fritz Kundrun (collectively, “appellees“).
Appellants brought suit in the United States District Court for the Southern District of New York to enforce a foreign arbitral award against appellees as alter-egos of the then-defunct award-debtor. The district court first dismissed appellants’ cause of action to enforce the foreign arbitral award on the basis that the
Today, we grant appellees’ petition for rehearing for the limited purpose of vacating the original decision and simultaneously issuing this amended decision to correct our instructions to the district court with regards to the applicable law for an enforcement action at Section I.c., infra.
In No. 15-1133, we hold that the district court both (1) erred in determining that the
In No. 15-1133, Vacated and Remanded. In 15-1146, Dismissed as Moot.
ADAM K. GRANT, Polsinelli PC (David L. Barrack, on the brief), New York, NY, for Plaintiffs-Appellants.
KEVIN P. LUCAS, Buchanan Ingersoll & Rooney, PC (Bruce A. Americus, Alexandra P. West, Stuart P. Slotnick, on the brief), Pittsburg, PA, for Defendants-Appellees.
Peter Aronoff, Benjamin H. Torrance, Assistant United States Attorneys, Of Counsel; Benjamin C. Mizer, Principal Deputy Assistant Attorney General; Sharon Swingle, Attorney, Appellate Staff, Civil Division,
William H. Taft V, Richard L. Mattiaccio, Dana C. MacGrath, Steven Skulnik, The Association of the Bar of the City of New York, New York, NY, as amicus curiae in support of Defendants-Appellees’ Petition for Rehearing.
POOLER, Circuit Judge:
Plaintiffs-Appellants CBF Indústria de Gusa S/A, Da Terra Siderúrgica LTDA, Fergumar— Ferro Gusa do Maranhão LTDA, Ferguminas Siderúrgica LTDA, Gusa Nordeste S/A, Sidepar—Siderúrgica do Pará S/A, and Siderúrgica União S/A (collectively, “appellants” or “award-creditors“) appeal two judgments of the United States District Court for the Southern District of New York (Sweet, J.) dismissing both appellants’ initial action to enforce and appellants’ subsequent action to confirm a foreign arbitral award against defendants-appellees AMCI Holdings, Inc., American Metals & Coal International, Inc., K-M Investment Corporation, Prime Carbon GmbH, Primetrade, Inc., Hans Mende, and Fritz Kundrun (collectively, “appellees“) as
Appellants brought suit in the United States District Court for the Southern District of New York to enforce a foreign arbitral award against appellees as alter-egos of the then-defunct award-debtor. The district court first dismissed appellants’ cause of action to enforce the foreign arbitral award on the basis that the
We hold the district court erred (1) in determining that the
We further grant appellees’ petition for rehearing for the limited purpose of vacating the original decision and simultaneously issuing this amended
BACKGROUND
I. The Parties
Appellants are a group of foreign companies organized under the laws of, and with their offices located in, Brazil. They produce and supply “pig iron,” which is a type of “intermediate metal made by smelting iron ore with high-carbon fuel.” App‘x at 789 ¶ 27. Pig iron can then be further refined to become steel or wrought iron.
Appellees are a group of interrelated companies (collectively, the “corporate appellees“) and two individuals, Hans Mende and Fritz Kundrun (collectively, the “individual appellees“). According to appellants, the individual appellees financially control, directly or indirectly, the corporate appellees.
II. Allegations in the Amended Complaint
As this is an appeal taken from a decision on a motion to dismiss, the facts are largely drawn from the amended complaint and are accepted as true for the
Beginning in the mid-1990s, appellants sold pig iron to a Swiss company called Primetrade AG. Some portion of that pig iron was then supplied to Primetrade USA which, appellants allege, together with Primetrade AG, “operated as one company” at all relevant times. App‘x at 790 ¶ 30.3 On or about February 28, 2004, a bulk carrier transporting cargo for Primetrade AG exploded off the coast of Colombia, causing the death of the master and five crew members. In April 2005, Primetrade AG transferred its assets, including its agreements with appellants, to Steel Base Trade, AG (“SBT“), a Swiss company, which “began operating with the same officers and directors as Primetrade AG and at the same offices.” App‘x at 790 ¶ 32. The transfer to SBT was apparently due to the fact that Primetrade AG garnered negative publicity following litigation arising out of the ship explosion. [JA 41] Silvio Moreira, a representative of Primetrade AG in Brazil, informed two of the appellants that
On or about October 5, 2007, AMCI International GmbH (“AMCI International“), a company owned and controlled by the individual appellees, purchased SBT and its U.S. subsidiary, Primetrade USA. In 2008, appellants and SBT entered into ten separate contracts for the sale and purchase of 103,500 metric tons of pig iron to SBT for more than $76 million (the “Contracts“). Only appellants and SBT are signatories of the Contracts; none of the appellees are signatories. Appellants claim four of the ten Contracts provided for delivery of pig iron in the United States. The delivery dates were set from April 2008 through December 1, 2008.
Each of the Contracts contained the following identical arbitration provision:
All disputes arising in connection with the present contract shall be finally settled under the rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris, by one or more arbiter, appointed in accordance with said rules.
Initially, in accordance with the Contracts, SBT purchased 33,056 metric tons of pig iron. Subsequently, however, SBT ceased purchasing pig iron from appellants as required by the Contracts and, by October 2008, SBT was in default of the Contracts. Indeed, in 2008, as the global economy declined, the so-called “commodities bubble” burst, causing many commodities to drop in price by more than a third. See, e.g., Clifford Krauss, Commodity Prices Tumble, N.Y. Times, Oct. 13, 2008, http://www.nytimes.com/2008/10/14/business/ economy/14commodities.html (stating that “[m]etals, like aluminum, copper, and nickel have declined by a third or more.“). Soon thereafter, appellants contacted SBT regarding its non-compliance with the Contracts and, on November 20, 2008, SBT representative Dominic Sigrist responded via e-mail, stating:
You know our group and it is not our style to walk away from obligations. . . . We will need a long time to work this out together. My message to your group is: we are not walking away!!!
On September 11, 2009, appellants sent a written notice to SBT stating amounts due from SBT under the Contracts and proposing negotiation prior to submitting the contract breach to arbitration before the International Chamber of Commerce, Paris (the “ICC Paris“). SBT allegedly asked for some time to evaluate the Contracts and respond to the offer to negotiate. Appellants allege, however, that this was simply a ruse to buy time to allow its alter-egos, appellees, to “engage in a scheme to leave SBT assetless and unable to pay its some of creditors, including [appellants].” App‘x at 793 ¶ 45.
III. Arbitration Proceedings, the Transfer Agreement, and SBT‘s Bankruptcy
When SBT ultimately responded but failed to either provide a settlement proposal or provide an indication that it would perform the Contracts, appellants
[SBT] does not try to evade from its obligations[.]
It is true that the website www.steelbasetrade.com was shut down at the beginning of January 2010[.] The reason is that [SBT] first has to analyze [its] position regarding pending or imminent claims for damages from purchasers as well as against suppliers as well as [its] financial situation[.] Therefore, [SBT] has at least temporarily suspended [its] business activities. Please note, however, [SBT] is still existing and has not resolved to be dissolved and liquidated.
App‘x at 794 ¶ 51. According to appellants, this letter represents an additional intentional misrepresentation made by appellees to both appellants and the ICC Paris in order for the appellees to “buy time” while they “effectuate[d] their plan to make SBT an assetless and judgment proof company.” Appellants’ Br. at 10.
Indeed, on December 27, 2009, around one month before SBT submitted its answer to appellants’ Request for Arbitration and two weeks before SBT sent its letter to the ICC Paris stating it “ha[d] not resolved to be dissolved and liquidated[,]” appellants allege SBT entered into a transfer agreement with Prime Carbon. See CBF Indústria de Gusa S/A/ v. AMCI Holdings, Inc., No. 13 Civ. 2581, 2015 WL 1190137, at *4 (S.D.N.Y. Mar. 16, 2015) (hereinafter “Enforcement Decision“). Under this transfer agreement, designated as a “single entity succession” by the terms of the agreement, Prime Carbon became SBT‘s
On January 18, 2010, SBT sent letters to a variety of its pig iron suppliers notifying them that
- as of November 30, 2009, SBT had transferred all Goods and the respective title of the Goods to Prime Carbon;
- Prime Carbon was the new and sole owner of the Goods;
- Prime Carbon assumes all rights with respect to the transferred Goods; and
- Prime Carbon is willing to enter in[to] all contracts between your company and [SBT] and to perform under the same conditions.
Following the transfer agreement, Prime Carbon (a) had at least five of the same directors as SBT; (b) assumed ten of SBT‘s employment contracts; (c) appointed Mende to serve as the President of its Board of Directors; and (d) had, at all times, either the same address as SBT or the same address as AMCI International. The boards of SBT and Prime Carbon formally approved the transfer agreement on January 27, 2010, just two days after SBT had informed ICC Paris that SBT “does not try to evade from its obligations” and that SBT “is still existing and has not resolved to be dissolved and liquidated,” App‘x at 794 ¶ 51, and the same day SBT filed its answer to appellant‘s Request for Arbitration, App‘x at 797 ¶ 65.
SBT‘s bankruptcy administrator thereafter sought a stay of the arbitration proceedings pending before the ICC Paris on June 18, 2010. The ICC Paris did not initially rule on the request.
IV. The Arbitration Proceedings
On June 23, 2010, after appellants became aware of the transfer agreement and after they had made several requests to ICC Paris to take action with regards to SBT and the assets transferred to Prime Carbon during the arbitration
On September 21, 2010, the ICC Paris held a hearing regarding whether SBT was transferring its assets. SBT neither attended the hearing nor asked for the hearing to be postponed. Thereafter, the ICC Paris sent questions to all parties on September 27, 2010; these questions included inquiries into whether SBT had “transferred goods and respective titles of goods to Prime Carbon AG or to any other company after being notified of the Request for Arbitration” and whether SBT “sold, donated[,] or transferred assets, receivables[,] or rights to third parties after the date [SBT] w[as] notified of the instauration of th[e] arbitration procedure” before the ICC Paris. App‘x at 151-52 ¶ 28. SBT did not provide any response and also did not respond to the ICC Paris‘s order to “provide information of which assets, receivables[,] and rights have been sold,
As the ICC Paris did not initially rule on SBT‘s bankruptcy administrator‘s seeking of a stay of the arbitration proceedings in June 2010, the administrator renewed his request for a stay on December 15, 2010. On March 29, 2011, the administrator informed the ICC Paris that he had determined that SBT had insufficient funds to participate in the arbitration and that the estate and SBT‘s creditors did not wish to defend the claims before the ICC Paris. The bankruptcy administrator therefore admitted the claims against SBT as well as the damages sought by appellants (51,756,269.75 CHF).
On November 9, 2011, the ICC Paris rendered an arbitral award (the “award” or “foreign arbitral award“) in favor of appellants for $48,053,462.16 plus interest, and granted appellants arbitration costs and legal fees in the amount of $360,000. The ICC Paris did not grant appellants’ requested relief to reach Prime Carbon or any other third parties, shareholders, or directors, holding
V. The Action in Brazilian Courts
Concurrent with its requests for interim relief from the ICC Paris, appellants also took additional actions in an effort to prevent SBT‘s attempts to flout its contractual obligations. In particular, appellants sought an order in the Judicial Body of the State of Rio de Janeiro, Second District Court of Rio de Janeiro (the “Brazilian District Court“), against both SBT and Prime Carbon to prevent the departure of pig iron from Brazilian ports that had been purchased by Prime Carbon during the pendency of the ICC Paris arbitration. On March 22, 2010, the Brazilian District Court granted the preliminary order, finding that:
“Postponing” the adoption of the measures (requested by [appellants]) can “realistically” cause them a serious, irreparable or hardly reparable damage, also taking into account the “uncertainty” regarding the current economic situation of [SBT and Prime Carbon], considering the “fraud” that might have been perpetrated in the case at stake.
VI. Appellants’ Attempts to Collect on the Arbitral Award
On January 24, 2012, the SBT bankruptcy administrator issued a final report and, on January 27, 2012, SBT‘s bankruptcy was declared closed. Because SBT had transferred almost all of its assets to Prime Carbon, appellants were unable to enforce their award from the ICC Paris against SBT. When appellants sent notices to SBT-related companies, most did not reply and those that replied denied involvement with SBT. Appellants allege they were also unable to pursue claims against Prime Carbon because appellees had transferred Prime Carbon‘s
VII. The Enforcement Action
On April 18, 2013, appellants filed an action to enforce their foreign arbitral award in the district court for the Southern District of New York, seeking to enforce the award against SBT‘s “alter egos” and “successor[s]-in-interest” as well as to recover on state law fraud claims (the “Enforcement Action“). App‘x at 37. On July 30, 2013, appellees filed a motion to dismiss the Enforcement Action on the grounds that, among other things, forum in the United States was improper (forum non conveniens), that the action was an improper effort to modify the award, and that appellants were precluded from asserting the state law fraud claims because their fraud claims had been denied by the ICC Paris. Appellants assert that while briefing was “ongoing” in the Enforcement Action, unbeknownst to appellants, SBT was deleted from the Swiss Commercial Register on September 30, 2013. Appellants’ Br. at 19 (citing App‘x at 1249 & n.6). Appellants also allege that appellees never disclosed this fact to the district court in their reply brief or in any of their other motions in the Enforcement Action.
The district court held that Orion required a two-step process by which appellants were required to confirm the award prior to seeking enforcement of that award. Initial Order, 14 F. Supp. 3d at 478-79. Appellants had proposed a “carve-out” whereby confirmation was not required when confirmation was made impossible by appellees’ alleged fraudulent acts. See Enforcement Decision, 2015 WL 1190137, at *8. Appellants argued in support that the confirmation “‘prerequisite should not apply where alter ego defendants, through their own intentional wrongdoing, foreclosed any opportunity to confirm the award.” Id. (internal quotation marks and citation omitted). The district court rejected appellants’ argument, reasoning that this proposed exception would “undermine ‘the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.‘” Id. at *9 (quoting Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 90 (2d Cir. 2005)).
The district court also dismissed appellants’ five causes of action for fraud on the basis that the claims sought “a remedy previously sought by [appellants]
VIII. The Confirmation Action
In response to the district court‘s initial ruling that Orion required appellants to confirm their award prior to seeking its enforcement, appellants initiated an action on April 29, 2014 to confirm the arbitral award in the same district court (the “Confirmation Action“). As a legal entity, however, SBT was effectively a nullity after it was deleted from the Swiss Commercial Register. See Peter Forstmoser et al., Swiss Company Law § 56, N 153 (1996) (“A practical effect is, however, had by the striking of the corporation from the register, as this means the corporation is no longer able to act externally: it is no longer able to . . . be sued or have debt collection proceedings filed against it.“(italics in original)). As a
The district court also held that appellees were not judicially estopped from asserting SBT‘s lack of capacity as a defense. Appellants had argued that “[appellees] asserted repeatedly that Switzerland and France provided adequate forums for [appellants‘] claims [against SBT] and, indeed, were the proper forums for this action[,]” thereby estopping appellees from arguing SBT lacked capacity to be sued in any fora. Confirmation Decision, 2015 WL 1191269, at *3 (internal quotation marks omitted). The district court noted that, under Second Circuit precedent, a party may be judicially estopped from asserting a position if “(1) the party took an inconsistent position in a prior proceeding and (2) that position was adopted by the first tribunal in some manner, such as by rendering a favorable judgment.” Id. (quoting Holtz v. Rockefeller & Co., 258 F.3d 62, 80 (2d Cir. 2001) and citing Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 6-8 (2d Cir. 1999)). The district court noted that “[t]he purposes of the doctrine are to preserve the sanctity of the oath and to protect judicial integrity by avoiding the risk of inconsistent results in two proceedings.” Id. (quoting Mitchell, 190 F.3d at 6). But the district court held that, because the Enforcement Action was not dismissed on the grounds of forum non conveniens, the second prong of Holtz did not apply and appellees were therefore not judicially estopped from making the argument that SBT presently lacked capacity to be sued. Id. at *4.
IX. Appeal
Appellants timely filed their appeals from both the Enforcement Decision (No. 15-1133) and the Confirmation Decision (No. 15-1146). In their consolidated appeals, appellants argue, in relevant part, that: (1) the district court erred in holding that Orion Shipping & Trading Co., 312 F.2d at 300-01, required appellants to confirm their foreign arbitral award prior to enforcement; (2) the district court erred in dismissing appellants’ fraud claims on the basis of issue preclusion; and (3) the district court erred in determining that equitable estoppel did not preclude appellees from using SBT‘s immunity from suit as a basis for dismissing the Confirmation Action.
DISCUSSION
I. The District Court Erred in Holding Appellants were Required to Confirm their Foreign Arbitral Award Prior to Enforcement
a. Standard of Review
This court “review[s] a district court‘s legal interpretations of the New York Convention as well as its contract interpretation de novo; findings of fact are reviewed for clear error.” VRG Linhas Aereas S.A. v. MatlinPatterson Glob. Opportunities Partners II L.P., 717 F.3d 322, 325 (2d Cir. 2013) (citations omitted).
b. Analysis
This action arises under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517. The United States acceded to the New York Convention on September 30, 1970, and it entered into force in the United States on December
The New York Convention only applies to “the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought” and to “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.” N.Y. Convention, art. I(1). According to the Restatement (Third) of the U.S. Law of International Commercial Arbitration, an arbitral award is “made” in the country of the “arbitral seat,” which is “the jurisdiction designated by the parties or by an entity empowered to do so on their behalf to be the juridical home of the arbitration.” Restatement (Third) of the U.S. Law of Int‘l Commercial Arbitration § 1-1 (s), (aa) (Am. Law Inst., Tentative Draft No. 2, 2012). Thus, the New York Convention applies to arbitral awards “made” in a foreign country that a party seeks to enforce in the United States (known as foreign arbitral awards), to arbitral awards “made” in the United States that a party seeks to enforce in a different country, and to nondomestic arbitral awards that a party seeks to enforce in the United States.