COMMODITIES & MINERALS ENTERPRISE LTD., Petitioner-Appellee, v. CVG FERROMINERA ORINOCO, C.A., Respondent-Appellant.
No. 20-4248
United States Court of Appeals For the Second Circuit
August Term, 2021 ARGUED: FEBRUARY 1, 2022 DECIDED: OCTOBER 3, 2022
Appeal from the United States District Court for the Southern District of New York
Respondent-Appellant CVG Ferrominera Orinoco, C.A. (“Ferrominera“), appeals from the judgment of the United States District Court for the Southern District of New York (Andrew L. Carter, Jr., Judge) confirming a foreign arbitral award and granting attorney‘s fees and costs in favor of Petitioner-Appellee Commodities & Minerals Enterprise Ltd. (“CME“). Ferrominera challenges the judgment on three grounds. First, it argues that the district court lacked personal jurisdiction because CME never served a summons on Ferrominera in connection with its motion to confirm the arbitral award. Second, Ferrominera contends that the district court erred in confirming the arbitral award based on purported lack of jurisdiction by the arbitral panel, issues with the scope of the award, and conflicts with United States public policy. Third, it argues that the district court abused its discretion in awarding attorney‘s fees and costs in favor of CME.
As to the first point, we hold that a party is not required to serve a summons in order to confirm a foreign arbitral award under the New York Convention. We further conclude that the district court properly enforced the arbitral award, but that it erred in awarding attorney‘s fees and costs. Accordingly, we AFFIRM in part and VACATE in part.
BRUCE G. PAULSEN (Brian P. Maloney, on the brief), Seward & Kissel LLP, New York, NY, for Petitioner-Appellee.
GARTH S. WOLFSON, Mahoney & Keane,
WILLIAM J. NARDINI, Circuit Judge:
Respondent-Appellant CVG Ferrominera Orinoco, C.A. (“Ferrominera“), appeals from the judgment of the United States District Court for the Southern District of New York (Andrew L. Carter, Jr., Judge) confirming a foreign arbitral award and granting attorney‘s fees and costs in favor of Petitioner-Appellee Commodities & Minerals Enterprise Ltd. (“CME“). Ferrominera challenges the judgment on three grounds. First, it argues that the district court lacked personal jurisdiction over Ferrominera because CME did not serve a summons when it moved to confirm the arbitral award. Second, Ferrominera contends that the district court erred in confirming the award, pointing to purported defects in the arbitral panel‘s jurisdiction, issues with the scope of the panel‘s award, and conflicts with United States public policy. Third, it argues that the district court abused its discretion in awarding attorney‘s fees and costs in favor of CME.
We hold that a party is not required to serve a summons in order to confirm a foreign arbitral award under the New York Convention, more formally known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38 (as applied through the Federal Arbitration Act (“FAA“),
I. Background
A. The commercial relationship
CME is incorporated under the laws of the British Virgin Islands and is in the business of trading commodities and minerals, including iron ore. Ferrominera is a Venezuelan company, owned by the Venezuelan government, that produces and exports iron ore.
The dispute in this case stems from a contract involving a ship named the General Piar. In 2010, Ferrominera chartered the General Piar from CME to shuttle iron ore from Ferrominera‘s Venezuelan mines, down the Orinoco River, and to an offshore transfer station where it would be shipped away by CME.1 The seventeen-page charter between CME and Ferrominera (the “General Piar Charter“) contains a broad arbitration clause, which states, in part:
This charter shall be governed by and construed in accordance with Title 9 of the United States Code and the maritime law of the United States Code and any dispute arising out of or in connection with this contract shall be referred to three persons at New York . . . ; their decision or that of any two of them shall be final, and for the purposes of enforcing any award, judgement may be entered on an award by any court of competent jurisdiction. The proceedings shall be conducted in accordance with the rules of the Society of Maritime Arbitrators, Inc.
Joint App‘x at 215-16.
B. The arbitration proceeding
By February 2016, the parties’ commercial relationship had deteriorated. Seeking
Ferrominera raised numerous jurisdictional defenses and substantive counterclaims. Among other things, it argued that the Panel lacked jurisdiction over the dispute because the General Piar Charter and its arbitration agreement were obtained through corruption and thus void, and that the arbitration agreement was invalid under Venezuelan law. Ferrominera also argued that CME‘s claims fell outside the scope of the arbitration clause. In the alternative, Ferrominera argued a variety of set-offs and counterclaims.
On December 20, 2018, the Panel found for CME and rejected Ferrominera‘s defenses.2 The Panel concluded that it had jurisdiction over the dispute and that the arbitration agreement covered the claims and counterclaims. As to the contract defenses, the Panel found that the General Piar Charter was not void or unenforceable, and was not invalid under Venezuelan law. Specifically, the Panel concluded that the evidence Ferrominera presented did not show that CME had engaged in corruption with respect to the General Piar Charter. As to the arguments of invalidity under Venezuelan law, the Panel held that Venezuelan law did not apply because U.S. maritime law was selected in the choice-of-law provision of the General Piar Charter. Even if Venezuelan law did apply, the Panel agreed with an expert in Venezuelan law offered by CME and determined that the Charter and its arbitration agreement would nonetheless be enforceable under the Venezuelan doctrine of “good faith.” The Panel found for CME and issued an award for $12,655,594.36, plus post-award interest at an annual rate of 5.5% until the award is fully paid or confirmed and made a judgment of the court.
C. Court proceedings to confirm the arbitral award
On December 19, 2019, CME brought this action to confirm the arbitral award in the Southern District of New York. CME sought entry of a judgment against Ferrominera, including the Panel‘s Award of $12,655,594.36 plus interest, as well as costs and expenses in favor of CME, including reasonable attorney‘s fees.
Ferrominera argued that the award should not be confirmed. It argued, inter alia, that the service of notice was defective; that the Panel lacked jurisdiction to arbitrate the dispute; that the Panel‘s award exceeded the scope of the arbitration agreement by failing to credit Ferrominera for payments it had made to CME under the General Piar Charter, and instead allocating them to different contracts; and that enforcing the award would violate United States public policy because the General Piar Charter was obtained through corruption.
On December 10, 2020, the district court entered judgment in favor of CME, granting CME‘s application to confirm the award and its request for attorney‘s fees and costs. Ferrominera appeals this judgment.
II. Discussion
On appeal, Ferrominera first challenges the district court‘s exercise of personal jurisdiction based on an alleged defect in
For the reasons discussed below, we affirm the district court‘s ruling confirming the Award, but hold that it abused its discretion in awarding attorney‘s fees and costs to CME.
A. Governing legal standards
An application to confirm a foreign arbitral award3 “‘is a summary proceeding that merely makes what is already a final arbitration award a judgment of the court.‘” Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997) (quoting Florasynth, Inc. v. Pickholz, 750 F.2d 171, 176 (2d Cir. 1984)). “The review of arbitration awards is ‘very limited . . . in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.‘” Yusuf Ahmed Alghanim & Sons, 126 F.3d at 23 (quoting Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993)). That review is “extremely deferential” to the findings of the arbitration panel. Porzig v. Dresdner, Kleinwort, Benson, N. Am. LLC, 497 F.3d 133, 139 (2d Cir. 2007).
The parties do not dispute that this case falls under the New York Convention. See Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983) (holding that the New York Convention‘s application to arbitral awards “not considered as domestic” includes awards “involving parties domiciled or having their principal place of business outside the enforcing jurisdiction“); see also
On appeal of a district court‘s confirmation of an arbitral award, “[w]e review 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.” Leeward Constr. Co., Ltd. v. Am. Univ. of Antigua-Coll. of Med., 826 F.3d 634, 638 (2d Cir. 2016) (quoting VRG Linhas Aereas S.A. v. MatlinPatterson Glob. Opportunities Partners II L.P., 717 F.3d 322, 325 (2d Cir. 2013)); see also Pemex, 832 F.3d at 100.
B. Personal jurisdiction
Ferrominera first challenges the district court‘s exercise of personal jurisdiction in this proceeding, antecedent to the question of whether any of the seven defenses to confirmation under the New York Convention apply. Ferrominera argues that because it is an instrumentality of a foreign state, the Foreign Sovereign Immunities Act (“FSIA“),
Accordingly, the district court correctly rejected Ferrominera‘s service argument and appropriately exercised personal jurisdiction.
To understand how service must be made on an instrumentality of a foreign government in a proceeding to confirm a foreign arbitral award, we must consider a series of cross-references involving the FAA, the Federal Rules of Civil Procedure, and the FSIA.
Our starting point is Chapter 2 of the FAA, which codifies enforcement of foreign arbitral awards under the New York Convention. Chapter 2 instructs parties on how to file an application to confirm such an award, and how to defend against confirmation, but it does not lay out any rules for service of process. Section 207 authorizes a party to “apply” to a competent court “for an order confirming [an] award.”
To fill that gap, Chapter 2 resorts (with some caveats) to the rules governing domestic arbitral awards set forth in Chapter 1 of the FAA. Specifically, § 208 incorporates the provisions of Chapter 1, though only “to the extent that [Chapter 1] is not in conflict with [Chapter 2] or the Convention as ratified by the United States.”
Here, where the adverse party is the instrumentality of a foreign state, Rule 4 cross-references special rules of the FSIA. Specifically, Rule 4 provides that “[a] foreign state or its political subdivision, agency, or instrumentality must be served in accordance with
- by delivery of a copy of the summons and complaint in accordance with any special arrangement for service between the plaintiff and the agency or instrumentality; or
- if no special arrangement exists, by delivery of a copy of the summons and complaint either to an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process in the United States; or in accordance with an applicable international convention on service of judicial documents; or
- if service cannot be made under paragraphs (1) or (2), and if reasonably calculated to give actual notice, by delivery of a copy of the summons and complaint, together with a translation of each into the official language of the foreign state—
(A) as directed by an authority of the foreign state or political subdivision in response to a letter rogatory or request or
(B) by any form of mail requiring a signed receipt, to be addressed and dispatched by the clerk of the court to the agency or instrumentality to be served, or
(C) as directed by order of the court consistent with the law of the place where service is to be made.
Given that wandering path, we pause to briefly restate the journey. Neither Chapter 2 of the FAA nor the New York Convention mention service requirements for an application to confirm an arbitral award. Chapter 2 of the FAA incorporates Chapter 1 as a gap-filler, insofar as the two do not conflict. Chapter 1 of the FAA requires service of a “notice of application,” which must be done “in like manner” as other court process. The phrase “in like manner” refers to
Ferrominera argues that because CME failed to serve it with a summons, it failed to comply with the service requirements of the FSIA. It contends that the FSIA dictates “the exclusive means by which service of process may be effected,” and that
We hold that a summons is not required to properly effect service when seeking confirmation of a foreign arbitral award against a foreign instrumentality. We reach this conclusion for two principal reasons: (1) the FAA itself defines the documents to be served, and cross-references other provisions (including Rule 4 and the FSIA) only to fill gaps in the permissible manner of serving those documents; and (2) it would make no sense to import the FSIA‘s requirement of service of a “summons and complaint” into the FAA because motions to confirm arbitral awards are not commenced by the filing of a complaint.
First, a plain reading of the relevant statutes and rules supports the conclusion that the only thing that must be served is the notice of application. Chapter 1,
service “shall be made . . . in accordance with any special arrangement for service between the plaintiff and the agency or instrumentality.”
Wherever parties have agreed to arbitration under these Rules, they shall be deemed to have consented to service of any papers, notices or process necessary to initiate or continue an arbitration under these Rules or a court action to confirm judgment on the Award issued. Such documents may be served:
- By mail addressed to such party or counsel at their last known address; or
- By personal service.
Joint App‘x at 237. The district court found, and the parties do not dispute, that CME complied with this special arrangement. Commodities & Minerals Enter., Ltd. v. CVG Ferrominera Orinoco, C.A., No. 19-cv-11654-ALC, 2020 WL 7261111, at *2, *4 (S.D.N.Y. Dec. 10, 2020) (“CME served the instant petition and supporting documents on arbitration counsel to [Ferrominera] . . . and on [Ferrominera] at its last known address, in Venezuela by mail.“). As a result, CME complied with the service of notice requirements of the New York Convention and the FAA, and the district court properly exercised personal jurisdiction over Ferrominera.
C. Confirmation of the Award
Ferrominera next raises three arguments challenging the district court‘s confirmation of the award: (1) the arbitration agreement was invalid under Venezuelan law, and therefore the panel lacked jurisdiction to hear the dispute; (2) in the alternative, if the arbitration agreement was valid, the Panel nonetheless exceeded the scope of its jurisdiction under the arbitration agreement in its calculation of damages; and (3) confirming the Award would violate United States public policy because the General Piar Charter was the product of corruption.
We reject all three arguments.
1. Validity of the arbitration agreement
Ferrominera first challenges the confirmation of the Award on the ground that the Panel lacked jurisdiction because the arbitration agreement was invalid under Venezuelan law.
With respect to this challenge, Ferrominera fails to identify what (if any) specific defense it invokes under Article V(1) of the New York Convention. This is a serious lapse. Because the defenses listed under Article V are exhaustive and Ferrominera carries a heavy burden to prove such a defense, see Encyclopaedia Universalis, 403 F.3d at 90, a party must first identify which defense it is invoking to establish any potential entitlement to that
Ferrominera argues that the arbitration agreement was not “valid” because it was not authorized under any of three different Venezuelan laws. Specifically, it argues that various approvals were not in place from different Venezuelan officials, which were necessary for this state-owned business to enter an arbitration agreement. This argument is premised on the notion that the existence of a valid arbitration agreement is governed by Venezuelan law.
But Article V(1)(a) says otherwise. Whether an arbitration agreement is “valid” is governed by “the law to which the parties have subjected it” (or “failing any indication thereon, under the law of the country where the award was made“). New York Convention, Art. V(1)(a). Consistent with this language, we have repeatedly held that the existence or validity of an arbitration agreement is governed by a choice-of-law clause where one exists, because choice-of-law clauses are separable when the contract‘s validity is otherwise disputed. See Motorola Credit Corp. v. Uzan, 388 F.3d 39, 50-51 (2d Cir. 2004) (applying choice-of-law clause selecting Swiss law to determine validity of international arbitration agreement); Sphere Drake Ins. Ltd. v. Clarendon Nat‘l Ins. Co., 263 F.3d 26, 32 n.3 (2d Cir. 2001) (applying New Jersey and New York choice-of-law clauses to a party‘s claim that the underlying arbitration agreements were void because they were signed by an unauthorized agent); Int‘l Minerals & Res., S.A. v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996) (applying an English choice-of-law clause to an issue of contract formation); see also 3 Gary Born, International Commercial Arbitration § 26.05(C) (3d ed. 2021) (“A choice of law agreement is effective to select the law governing the arbitration agreement even if one party denies the validity or existence of those agreements.“).
Ferrominera contends that applying the Charter‘s choice-of-law clause to questions of validity inappropriately presumes the conclusion—namely, that the dispute resolution provision in which that choice-of-law clause sits is valid. Ferrominera relies on Schnabel v. Trilegiant Corp., 697 F.3d 110, 119 (2d Cir. 2012), to support this argument, but Schnabel is readily distinguished from the present case. In Schnabel, the Court declined to enforce the choice-of-law clause when considering whether the underlying contract was valid because there was a dispute about whether the choice-of-law clause had been part of the contract at the time of its formation. Id. at 114-19. Because the choice-of-law clause was specifically challenged, “[a]pplying [it] to resolve the contract formation issue would presume the applicability of a provision before its adoption by the parties has been established.” Id. at 119. Thus, rather than a broad exception to the ordinary rule (that choice-of-law clauses are separable), Schnabel presents only a narrow
Here, unlike in Schnabel, there is no dispute that the choice-of-law clause is included in the General Piar Charter, which both parties signed. Therefore, the ordinary rule—that choice-of-law clauses are separated out from contracts for questions of validity—applies in full force. See Motorola, 388 F.3d at 50-51. Applying that rule, we find that the General Piar Charter contained a choice-of-law clause, and that clause opted for U.S. maritime law. Joint App‘x at 215-16. Accordingly, U.S. law, and not Venezuelan law, governs the General Piar Charter, including any question about the arbitration agreement‘s validity.11
Ferrominera‘s arguments as to why there is no valid arbitration agreement, however, are limited exclusively to Venezuelan law. It has made no such arguments under U.S. maritime law. Because a party resisting confirmation of a foreign arbitral award has the burden of establishing a defense under Article V(1), we conclude that Ferrominera has not borne its burden to show that the arbitration agreement is invalid where, as here, it has put forth no arguments whatsoever under the applicable law.12 Accordingly, the arbitration agreement is valid and enforceable.
2. The scope of the arbitration agreement
Ferrominera next argues that the Award should not be confirmed under Article
But Ferrominera‘s claim amounts to nothing more than a quarrel over how much it owes in damages, which was properly a question for the arbitrators. As the district court correctly held, Article V(1)(c) provides a defense to confirmation where an arbitration award “deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.” The question of the correct calculation of damages “falls squarely within the broad arbitration clause in the General Piar Charter.” Commodities & Minerals Enter., 2020 WL 7261111, at *5. Ferrominera‘s argument—which is, at most, that the Panel calculated damages incorrectly—thus falls outside of Article V(1)(c) and, in fact, outside of any defense listed in Article V. Cf. Stolt-Nielsen S.A. v. AnimalFeeds Int‘l Corp., 559 U.S. 662, 671 (2010) (“It is not enough for petitioners to show that the panel committed an error—or even a serious error. It is only when an arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice that his decision may be unenforceable.” (cleaned up)); Parsons & Whittemore Overseas Co. v. Societe Generale De L‘Industrie Du Papier (RAKTA), 508 F.2d 969, 976-77 (2d Cir. 1974) (rejecting appellant‘s attack on money awarded for start-up expenses and costs because the New York Convention “does not sanction second-guessing the arbitrator‘s construction of the parties’ agreement“).
3. United States public policy
Ferrominera brings its final argument against confirmation of the Award under Article V(2)(b) of the New York Convention. The thrust of this argument is that the General Piar Charter was procured through corruption and, therefore, enforcement of the Award would violate United States public policy.
This argument, however, falls outside the narrow public policy exception codified by Article V(2)(b). Article V(2)(b) allows a court to refuse “recognition or enforcement of the award [if such recognition or enforcement] would be contrary to the public policy of that country.” See Telenor Mobile Commc‘ns AS v. Storm LLC, 584 F.3d 396, 405, 411 (2d Cir. 2009) (holding that confirming a foreign arbitral award was not contrary to New York‘s public policy against compelling a party to violate a foreign judgment). But “Article V(2)(b) must be ‘construed very narrowly’ to encompass only those circumstances ‘where enforcement would violate our most basic notions of morality and justice.‘” Id. at 411 (quoting Europcar Italia S.p.A. v. Maiellano Tours, Inc., 156 F.3d 310, 315 (2d Cir. 1998)). In reviewing an arbitral award for violations of public policy, a court may not “revisit or question the fact-finding or the reasoning which produced the award.” IBEW, Local 97 v. Niagara Mohawk Power Corp., 143 F.3d 704, 716 (2d Cir. 1998). Instead, “a court‘s task in reviewing . . . possible violations of public policy is limited to determining whether the award itself, as contrasted with the reasoning that underlies the award, ‘create[s] [an] explicit conflict with other laws
Ferrominera‘s public policy argument attacks the General Piar Charter itself, not the Award or its enforcement. The Panel carefully considered Ferrominera‘s corruption allegations and gave Ferrominera ample opportunity to substantiate its claim. Despite extensive discovery and opportunity to present its case, the Panel concluded that the General Piar Charter was not, as a factual matter, the product of corrupt acts by CME. Both before the district court and here, Ferrominera merely seeks to relitigate the Panel‘s factual determination on this point. It offers no argument that enforcement itself, “within the parameters of the arbitrator‘s interpretation of the facts,” IBEW, Local 97, 143 F.3d at 726, violates public policy.13
In sum, Ferrominera‘s public policy argument asks this Court to relitigate the Panel‘s factual determinations underlying the validity of the Charter. But this argument falls outside of Article V(2)(b)‘s narrow public policy exception, and the district court properly rejected it.
D. Attorney‘s fees
Lastly, Ferrominera challenges the district court‘s award of attorney‘s fees in favor of CME.
The district court granted CME‘s request for attorney‘s fees “in light of Ferrominera‘s failure to comply with the award or come forward with a good faith reason for not complying.” Commodities & Minerals Enter., 2020 WL 7261111, at *7. Although our review of fee awards is “highly deferential,” Mautner v. Hirsch, 32 F.3d 37, 39 (2d Cir. 1994), we conclude that the district court abused its discretion here.
Generally, “in a federal action, attorney‘s fees cannot be recovered by the successful party in the absence of statutory authority for the award.” Int‘l Chem. Workers Union (AFL-CIO), Local No. 227 v. BASF Wyandotte Corp., 774 F.2d 43, 47 (2d Cir. 1985).
Here, although we ultimately disagree with Ferrominera‘s arguments, we conclude that those arguments were not presented “without justification,” id., and that Ferrominera did not act “in bad faith, vexatiously, wantonly, or for oppressive reasons.” F.D. Rich Co., 417 U.S. at 129. In particular, we note that the first question addressed in this opinion—namely, whether service of a summons is required to apply to a court for an order confirming a foreign arbitration award— is a question of first impression for this Court. Furthermore, we acknowledge that Ferrominera twice achieved some success on this exact argument in another federal district court. See Commodities & Minerals Enterprise Ltd., 2017 WL 11625759; Commodities & Mins. Enter. Ltd., 338 F.R.D. 664, 667. We therefore cannot say that its arguments were brought in bad faith. See Oliveri v. Thompson, 803 F.2d 1265, 1272 (2d Cir. 1986) (“[W]e have declined to uphold [fee] awards under the bad-faith exception absent both ‘clear evidence’ that the challenged actions are ‘entirely without color, and [are taken] for reasons of harassment or delay or for other improper purposes’ and a ‘high degree of specificity in the factual findings of [the] lower courts.‘” (quoting Dow Chemical Pacific Ltd. v. Rascator Maritime S.A., 782 F.2d 329, 344 (2d Cir. 1986))).
Accordingly, we vacate the portion of the judgment that awarded attorney‘s fees and costs to CME.
III. Conclusion
In sum, we hold as follows:
- A party applying to a court to confirm a foreign arbitral award under Chapter 2 of the Federal Arbitration Act and the New York Convention is not required to serve a summons on the adverse party to satisfy the FAA‘s service of notice requirement. CME properly effected service of notice on Ferrominera because its service of notice complied with the parties’ “special arrangement” as permitted under
28 U.S.C. § 1608(b)(1) . - The district court properly enforced the arbitration award because Ferrominera failed to establish that the arbitration agreement was invalid under U.S. maritime law, the Panel did not exceed its authority under the arbitration agreement in issuing the Award, and the Award is not contrary to U.S. public policy.
- The district court abused its discretion in awarding attorney‘s fees and costs in favor of CME.
We therefore AFFIRM the judgment of the district court to the extent that it recognized and enforced the Award in favor of CME and VACATE the judgment of the district court to the extent that it awarded attorney‘s fees and costs in favor of CME.