CBF Industria De Gusa S/A v. AMCI Holdings, Inc., No. 15-1133 (2d Cir. 2017)
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CBF, appellants and award-creditors, challenged the district court's two judgments dismissing CBF's initial action to enforce and subsequent action to confirm a foreign arbitral award against appellees as alter-egos of the then defunct award-debtor. The court held that the district court erred in determining that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. 201 et seq., require appellants to seek confirmation of a foreign arbitral award before the award may be enforced by a United States District Court, and in holding that appellants’ fraud claims should be dismissed prior to discovery on the ground of issue preclusion as issue preclusion is an equitable doctrine and appellants plausibly allege that appellees engaged in fraud. In No. 15-1133, the court vacated the dismissal of the action to enforce and remanded for further proceedings. In No. 15-1146, the court found the appeal of the district court's order in the action to conform is moot and dismissed the appeal.
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15-1133-cv (L) CBF Industria De Gusa S/A, et al. v. AMCI Holdings, Inc., et al. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 15 1133 cv(L) CBF Indústria De Gusa S/A, et al. v. AMCI Holdings, Inc., et al. UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT ____________________ August Term, 2015 (Argued: March 2, 2016 Final Briefs Submitted: October 5, 2016 Decided: January 18, 2017) Docket Nos. 15 1133 cv(L), 15 1146 cv(CON) ____________________ 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, SIDERÚRGICA UNIÃO S/A, 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 ____________________ The Clerk of Court is respectfully instructed to amend the official caption in this case to conform to the listing of the parties above. 1 2 Before: KEARSE, POOLER, and SACK, Circuit Judges. Appeals from two judgments of the United States District Court for the 3 Southern District of New York (Sweet, J.) dismissing both the initial action to 4 enforce and the subsequent action to confirm a foreign arbitral award brought by 5 plaintiffs appellants CBF Indústria de Gusa S/A, Da Terra Siderúrgica LTDA, 6 Fergumar— Ferro Gusa do Maranhão LTDA, Ferguminas Siderúrgica LTDA, 7 Gusa Nordeste S/A, Sidepar—Siderúrgica do Pará S/A, and Siderúrgica União 8 S/A (collectively, “appellants” or “award creditors”) against defendants 9 appellees AMCI Holdings, Inc., American Metals & Coal International, Inc., K M 1 10 Investment Corporation, Prime Carbon GmbH, Primetrade, Inc., Hans Mende, 11 and Fritz Kundrun (collectively, “appellees”). 12 Appellants brought suit in the United States District Court for the 13 Southern District of New York to enforce a foreign arbitral award against 14 appellees as alter egos of the then defunct award debtor. The district court first 15 dismissed appellants’ cause of action to enforce the foreign arbitral award on the 16 basis that the United Nations Convention on the Recognition and Enforcement of 17 Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 2 1 201 et seq., required appellants to seek confirmation of the award prior to 2 enforcement. The district court also dismissed appellants’ five causes of action 3 for fraud on the basis of issue preclusion due to prior consideration of certain 4 fraud issues by the arbitral panel. After appellants filed a second proceeding 5 seeking to confirm the foreign arbitral award and filed an amended complaint in 6 the enforcement proceeding, the district court dismissed the action to confirm on 7 the basis that the award debtor was immune from suit under Federal Rule of 8 Civil Procedure 17(b) and then dismissed the amended action to enforce for 9 failure to confirm the foreign arbitral award. 10 In No. 15 1133, we hold that the district court both (1) erred in determining 11 that the United Nations Convention on the Recognition and Enforcement of 12 Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 13 201 et seq., require appellants to seek confirmation of a foreign arbitral award 14 before the award may be enforced by a United States District Court and (2) erred 15 in holding that appellants’ fraud claims should be dismissed prior to discovery 16 on the ground of issue preclusion as issue preclusion is an equitable doctrine and 17 appellants plausibly allege that appellees engaged in fraud. Accordingly, we 3 1 vacate the district court’s judgment dismissing the action to enforce and remand 2 for further proceedings consistent with this opinion. In No. 15 1146, we hold that 3 the appeal of the judgment dismissing the action to confirm is moot and 4 accordingly dismiss that appeal. 5 In No. 15 1133, Vacated and Remanded. In 15 1146, Dismissed as Moot. ____________________ 6 ADAM K. GRANT, Polsinelli PC (David L. Barrack, on the brief), New York, NY, for Plaintiffs Appellants. 7 8 KEVIN P. LUCAS, Buchanan Ingersoll & Rooney, PC (Bruce A. Americus, Alexandra P. West, Stuart P. Slotnick, on the brief), Pittsburg, PA, for Defendants Appellees. 9 10 11 12 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, Department of Justice; Brian Egan, Legal Adviser, Department of State, for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, as amicus curiae in support of Plaintiffs Appellants. 13 14 15 16 17 18 19 20 21 4 1 POOLER, Circuit Judge: 2 3 LTDA, Fergumar— Ferro Gusa do Maranhão LTDA, Ferguminas Siderúrgica 4 LTDA, Gusa Nordeste S/A, Sidepar—Siderúrgica do Pará S/A, and Siderúrgica 5 União S/A (collectively, “appellants” or “award creditors”) appeal two 6 judgments of the United States District Court for the Southern District of New 7 York (Sweet, J.) dismissing both appellants’ initial action to enforce and 8 appellants’ subsequent action to confirm a foreign arbitral award against 9 defendants appellees AMCI Holdings, Inc., American Metals & Coal Plaintiffs Appellants CBF Indústria de Gusa S/A, Da Terra Siderúrgica 10 International, Inc., K M Investment Corporation, Prime Carbon GmbH, 11 Primetrade, Inc., Hans Mende, and Fritz Kundrun (collectively, “appellees”) as 12 alter egos of the award debtor. 13 Appellants brought suit in the United States District Court for the 14 Southern District of New York to enforce a foreign arbitral award against 15 appellees as alter egos of the then defunct award debtor. The district court first 16 dismissed appellants’ cause of action to enforce the foreign arbitral award on the 17 basis that the United Nations Convention on the Recognition and Enforcement of 5 1 Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 2 201 et seq., required appellants to seek confirmation of the foreign arbitral award 3 prior to enforcement. The district court also dismissed appellants’ five causes of 4 action for fraud on the basis of issue preclusion2 due to prior consideration of 5 certain fraud issues by the arbitral panel. After appellants filed a second 6 proceeding seeking to confirm the foreign arbitral award and filed an amended 7 complaint in the enforcement proceeding, the district court dismissed the action 8 to confirm on the basis that the award debtor was immune from suit under 9 Federal Rule of Civil Procedure 17(b) and then dismissed the amended action to 10 enforce for failure to confirm the foreign arbitral award. We hold the district court erred (1) in determining that the United Nations 11 12 Convention on the Recognition and Enforcement of Foreign Arbitral Awards and 13 Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq., require appellants 14 to seek confirmation of a foreign arbitral award before the award may be The doctrine of issue preclusion is sometimes called “collateral estoppel,” but as the Supreme Court has repeatedly noted, “‘issue preclusion’ is the more descriptive term.” Bravo Fernandez v. United States, 137 S. Ct. 352, 365 n.1 (2016) (citing Yeager v. United States, 557 U.S. 110, 120 n.4). Following the Supreme Court’s suggestion, we use the term “issue preclusion” here. 2 6 1 enforced by a United States District Court and (2) in holding that appellants’ 2 fraud claims should be dismissed prior to discovery on the ground of issue 3 preclusion as issue preclusion is an equitable doctrine and appellants plausibly 4 allege that appellees engaged in fraud. Accordingly, in No. 15 1133, we vacate 5 the district court’s judgement dismissing the action to enforce and remand for 6 further proceedings consistent with this opinion; in 15 1146, we find the appeal 7 of the district court’s order in the action to confirm is moot and dismiss the 8 appeal. BACKGROUND 9 10 11 I. The Parties Appellants are a group of foreign companies organized under the laws of, 12 and with their offices located in, Brazil. They produce and supply “pig iron,” 13 which is a type of “intermediate metal made by smelting iron ore with high 14 carbon fuel.” App’x at 789 ¶ 27. Pig iron can then be further refined to become 15 steel or wrought iron. 16 Appellees are a group of interrelated companies (collectively, the 17 “corporate appellees”) and two individuals, Hans Mende and Fritz Kundrun 7 1 (collectively, the “individual appellees”). According to appellants, the individual 2 appellees financially control, directly or indirectly, the corporate appellees. II. Allegations in the Amended Complaint 3 As this is an appeal taken from a decision on a motion to dismiss, the facts 4 5 are largely drawn from the amended complaint and are accepted as true for the 6 purposes of this appeal. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. 7 Corp. v. Twombly, 550 U.S. 544, 555 (2007). Beginning in the mid 1990s, appellants sold pig iron to a Swiss company 8 9 called Primetrade AG. Some portion of that pig iron was then supplied to 10 Primetrade USA which, appellants allege, together with Primetrade AG, 11 “operated as one company” at all relevant times. App’x at 790 ¶ 30.3 On or about 12 February 28, 2004, a bulk carrier transporting cargo for Primetrade AG exploded 13 off the coast of Colombia, causing the death of the master and five crew 14 members. In April 2005, Primetrade AG transferred its assets, including its 15 agreements with appellants, to Steel Base Trade, AG (“SBT”), a Swiss company, Appellees make special note that the relevant contracts called for delivery in Brazil, and none called for delivery or performance in the United States, “much less New York.” Appellees’ Br. at 6 7 & n.5. 3 8 1 which “began operating with the same officers and directors as Primetrade AG 2 and at the same offices.” App’x at 790 ¶ 32. The transfer to SBT was apparently 3 due to the fact that Primetrade AG garnered negative publicity following 4 litigation arising out of the ship explosion. [JA 41] Silvio Moreira, a 5 representative of Primetrade AG in Brazil, informed two of the appellants that 6 “the business would be the same, just under a different name.” App’x at 790 ¶ 7 32. 8 On or about October 5, 2007, AMCI International GmbH (“AMCI 9 International”), a company owned and controlled by the individual appellees, 10 purchased SBT and its U.S. subsidiary, Primetrade USA. In 2008, appellants and 11 SBT entered into ten separate contracts for the sale and purchase of 103,500 12 metric tons of pig iron to SBT for more than $76 million (the “Contracts”). Only 13 appellants and SBT are signatories of the Contracts; none of the appellees are 14 signatories. Appellants claim four of the ten Contracts provided for delivery of 15 pig iron in the United States. The delivery dates were set from April 2008 16 through December 1, 2008. 9 1 Each of the Contracts contained the following identical arbitration 2 provision: 3 7 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. App’x at 72, 78, 84, 90, 96, 102, 109, 116, 123, 130, 792. The Contracts did not 8 provide that they were entered into on behalf of any other party or specify that 9 they are binding on successors in interest or assigns. 4 5 6 10 Initially, in accordance with the Contracts, SBT purchased 33,056 metric 11 tons of pig iron. Subsequently, however, SBT ceased purchasing pig iron from 12 appellants as required by the Contracts and, by October 2008, SBT was in default 13 of the Contracts. Indeed, in 2008, as the global economy declined, the so called 14 “commodities bubble” burst, causing many commodities to drop in price by 15 more than a third. See, e.g., Clifford Krauss, Commodity Prices Tumble, N.Y. Times, 16 Oct. 13, 2008, http://www.nytimes.com/2008/10/14/business/ 17 economy/14commodities.html (stating that “[m]etals, like aluminum, copper, 18 and nickel have declined by a third or more.”). Soon thereafter, appellants 19 contacted SBT regarding its non compliance with the Contracts and, on 10 1 November 20, 2008, SBT representative Dominic Sigrist responded via e mail, 2 stating: 3 4 5 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!!! 6 App’x at 792 ¶ 42. Appellants allege this was a false representation made in 7 furtherance of Mende and Kundrun’s fraudulent conveyance scheme, which 8 involved selling SBT’s assets to a separate entity—a shell company owned by 9 Mende and Kundrun. Despite SBT’s statement that it would not walk away from 10 its obligations, appellants allege they learned through publicly available 11 shipping records that SBT had been purchasing pig iron from other sources. 12 On September 11, 2009, appellants sent a written notice to SBT stating 13 amounts due from SBT under the Contracts and proposing negotiation prior to 14 submitting the contract breach to arbitration before the International Chamber of 15 Commerce, Paris (the “ICC Paris”). SBT allegedly asked for some time to 16 evaluate the Contracts and respond to the offer to negotiate. Appellants allege, 17 however, that this was simply a ruse to buy time to allow its alter egos, 11 1 appellees, to “engage in a scheme to leave SBT assetless and unable to pay its 2 some of creditors, including [appellants].” App’x at 793 ¶ 45. III. 3 4 Arbitration Proceedings, the Transfer Agreement, and SBT’s Bankruptcy 5 When SBT ultimately responded but failed to either provide a settlement 6 proposal or provide an indication that it would perform the Contracts, appellants 7 filed a request for arbitration in accordance with the arbitration clause of the 8 Contracts with the ICC Paris on November 16, 2009. Soon thereafter, SBT 9 requested an extension of time from the ICC Paris until February 15, 2010 to 10 answer the request for arbitration. The ICC Paris granted an extension until 11 January 27, 2010. During this period, appellants allege that SBT, at Mende and 12 Kundrun’s direction, formulated and enacted “their [fraudulent] scheme to 13 transfer all of SBT’s assets to a preexisting shell company owned by Mende and 14 Kundrun” on December 23, 2009. App’x at 793 ¶ 48. For example, appellants 15 learned through publicly available records that a Swiss entity named Prime 16 Carbon GmbH (“Prime Carbon”) had begun making significant purchases of pig 17 iron. On January 15, 2010, appellants sent a letter to the ICC Paris suggesting that 18 SBT appeared to be “transferring its business operations and assets to Prime 12 1 Carbon[.]” App’x at 794 ¶ 50. Appellants had discovered that: (a) Prime Carbon 2 had the same address as SBT’s parent company AMCI International; (b) Mende 3 was the President of the Board of Directors of Prime Carbon; (c) former directors 4 of SBT had become directors of Prime Carbon; and (d) SBT’s website was no 5 longer available. Ten days later, SBT responded by stating: 6 7 8 9 10 11 12 13 14 [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. 15 App’x at 794 ¶ 51. According to appellants, this letter represents an additional 16 intentional misrepresentation made by appellees to both appellants and the ICC 17 Paris in order for the appellees to “buy time” while they “effectuate[d] their plan 18 to make SBT an assetless and judgment proof company.” Appellants’ Br. at 10. 19 Indeed, on December 27, 2009, around one month before SBT submitted its 20 answer to appellants’ Request for Arbitration and two weeks before SBT sent its 21 letter to the ICC Paris stating it “ha[d] not resolved to be dissolved and 13 1 liquidated[,]” appellants allege SBT entered into a transfer agreement with Prime 2 Carbon. See CBF Indústria de Gusa S/A/ v. AMCI Holdings, Inc., No. 13 Civ. 2581, 3 2015 WL 1190137, at *4 (S.D.N.Y. Mar. 16, 2015) (hereinafter “Enforcement 4 Decision”). Under this transfer agreement, designated as a “single entity 5 succession” by the terms of the agreement, Prime Carbon became SBT’s 6 successor in interest. SBT transferred nearly all of its assets, valued at 7 approximately $126 million, along with liabilities of approximately $130 million 8 to Prime Carbon in exchange for $1. App’x at 795 96 ¶¶ 58 59. The transferred 9 assets included SBT’s ownership stake in Primetrade USA (its main asset), shares 10 of an Aruba LLC, insurance policies and physical assets, and bank lines. SBT’s 11 sole remaining asset after the transfer was a few thousand Swiss francs (“CHF”). 12 SBT also retained approximately $50 million in liability to appellants and $4.5 13 million in liability to another creditor, Progress Rail. Appellants describe the 14 transfer agreement as a “turn key operation” so that Prime Carbon could 15 “seamlessly assume SBT’s place in the pig iron market without any contractual 16 obligations to [a]ppellants.” Appellants’ Br. at 11 (internal quotation marks 17 omitted). 14 1 2 3 4 5 6 7 8 9 On January 18, 2010, SBT sent letters to a variety of its pig iron suppliers notifying them that (i) as of November 30, 2009, SBT had transferred all Goods and the respective title of the Goods to Prime Carbon; (ii) Prime Carbon was the new and sole owner of the Goods; (iii) Prime Carbon assumes all rights with respect to the transferred Goods; and (iv) Prime Carbon is willing to enter in[to] all contracts between your company and [SBT] and to perform under the same conditions. App’x at 794 95 ¶ 53 (internal quotation marks omitted). Further, the letters 10 advised pig iron suppliers “to act from the time being only on [the] instruction of 11 Prime Carbon.” App’x at 795 ¶ 54. According to appellants, “SBT, at Mende’s 12 and Kundrun’s direction, used the delay granted by the ICC Paris to effectuate 13 their plan to transfer SBT’s assets to a new company ultimately owned by them.” 14 Appellants’ Br. at 12. 15 Following the transfer agreement, Prime Carbon (a) had at least five of the 16 same directors as SBT; (b) assumed ten of SBT’s employment contracts; 17 (c) appointed Mende to serve as the President of its Board of Directors; and 18 (d) had, at all times, either the same address as SBT or the same address as AMCI 19 International. The boards of SBT and Prime Carbon formally approved the 20 transfer agreement on January 27, 2010, just two days after SBT had informed 15 1 ICC Paris that SBT “does not try to evade from its obligations” and that SBT “is 2 still existing and has not resolved to be dissolved and liquidated,” App’x at 794 3 ¶ 51, and the same day SBT filed its answer to appellant’s Request for 4 Arbitration, App’x at 797 ¶ 65. 5 On April 27, 2010, SBT mysteriously transferred 15,000 CHF to Prime 6 Carbon. Afterward, SBT was left with only 7,000 CHF in assets. The next day, 7 April 28, 2010, SBT filed for bankruptcy in Switzerland before the Cantonal Court 8 of Zug. Appellants note that, despite having little to no assets following the 9 transfer agreement, SBT waited four months to file for bankruptcy. Appellants 10 also contend that the transfer of 15,000 CHF to Prime Carbon on April 27, 2010 11 was an intentional act designed to make it impossible for SBT’s bankruptcy 12 administrator to participate in the arbitration on SBT’s behalf. Appellants, 13 however, admit that “none of SBT’s records provide a contemporaneous 14 explanation” for the transfer. Appellants’ Br. at 13. 15 SBT’s bankruptcy administrator thereafter sought a stay of the arbitration 16 proceedings pending before the ICC Paris on June 18, 2010. The ICC Paris did not 17 initially rule on the request. 16 1 2 IV. The Arbitration Proceedings On June 23, 2010, after appellants became aware of the transfer agreement 3 and after they had made several requests to ICC Paris to take action with regards 4 to SBT and the assets transferred to Prime Carbon during the arbitration 5 proceedings, appellants requested that the ICC Paris grant appellants interim 6 relief to allow appellants to seize up to approximately $42 million of SBT’s. In 7 their petition, appellants alleged wrongful asset transfers and requested the ICC 8 Paris grant them relief allowing them to seize assets held by SBT or held in the 9 name of Prime Carbon. Following a hearing, the ICC Paris ordered appellants to 10 specify the interim relief they sought from SBT. Appellants submitted a petition 11 for interim relief on July 2, 2010, and sought an order for SBT to post a guarantee 12 and to provide documents and information regarding its company (including its 13 shareholders, its directors, its assets, and its liabilities). In that request and 14 related correspondence, appellants specifically requested that the ICC Paris 15 “[r]ecognize the existence of fraudulent acts” as a basis upon which appellants 16 might reach the assets of related third parties, “recognize as illegal the fraud 17 perpetrated by [SBT], which shall then be held liable, permitting [appellants] to 17 1 pursue [their] credits against [SBT’s] shareholders and managers, by application 2 of the disregard doctrine[,]” “recognize these acts taken in the course of the 3 procedure as frauds[,]” and “decide upon the interim measures which are 4 necessary to make an upcoming award effective.” App’x at 151 ¶¶ 25 26, 155 ¶¶ 5 35 36 (internal quotation marks omitted). Appellants also asserted that they were 6 “pursuing a reasonable relief by means of having their credit duly recognized, as 7 well as the fraud carried out by [SBT] in the course of the procedure, so that they 8 c[ould] pierce the corporate veil and make [SBT’s] shareholders, directors[,] and 9 affiliated companies liable for the losses caused to [appellants.]” App’x at 154 ¶ 10 33. 11 On September 21, 2010, the ICC Paris held a hearing regarding whether 12 SBT was transferring its assets. SBT neither attended the hearing nor asked for 13 the hearing to be postponed. Thereafter, the ICC Paris sent questions to all 14 parties on September 27, 2010; these questions included inquiries into whether 15 SBT had “transferred goods and respective titles of goods to Prime Carbon AG or 16 to any other company after being notified of the Request for Arbitration” and 17 whether SBT “sold, donated[,] or transferred assets, receivables[,] or rights to 18 1 third parties after the date [SBT] w[as] notified of the instauration of th[e] 2 arbitration procedure” before the ICC Paris. App’x at 151 52 ¶ 28. SBT did not 3 provide any response and also did not respond to the ICC Paris’s order to 4 “provide information of which assets, receivables[,] and rights have been sold, 5 donated[,] or somehow transferred to third parties after the date they were 6 notified of the instauration of th[e] arbitration procedure.” App’x at 592. After 7 considering these allegations, the ICC Paris deferred decision until the merits 8 phase of the arbitration. 9 As the ICC Paris did not initially rule on SBT’s bankruptcy administrator’s 10 seeking of a stay of the arbitration proceedings in June 2010, the administrator 11 renewed his request for a stay on December 15, 2010. On March 29, 2011, the 12 administrator informed the ICC Paris that he had determined that SBT had 13 insufficient funds to participate in the arbitration and that the estate and SBT’s 14 creditors did not wish to defend the claims before the ICC Paris. The bankruptcy 15 administrator therefore admitted the claims against SBT as well as the damages 16 sought by appellants (51,756,269.75 CHF). 19 On November 9, 2011, the ICC Paris rendered an arbitral award (the 1 2 “award” or “foreign arbitral award”) in favor of appellants for $48,053,462.16 3 plus interest, and granted appellants arbitration costs and legal fees in the 4 amount of $360,000. The ICC Paris did not grant appellants’ requested relief to 5 reach Prime Carbon or any other third parties, shareholders, or directors, holding 6 that appellants “did not introduce sufficient evidence in the present proceedings 7 to demonstrate the existence of fraud in the bankruptcy proceedings.” 8 Enforcement Decision, 2015 WL 1190137, at *6 (internal quotation marks, 9 brackets, and citation omitted). V. 10 The Action in Brazilian Courts 11 Concurrent with its requests for interim relief from the ICC Paris, 12 appellants also took additional actions in an effort to prevent SBT’s attempts to 13 flout its contractual obligations. In particular, appellants sought an order in the 14 Judicial Body of the State of Rio de Janeiro, Second District Court of Rio de 15 Janeiro (the “Brazilian District Court”), against both SBT and Prime Carbon to 16 prevent the departure of pig iron from Brazilian ports that had been purchased 20 1 by Prime Carbon during the pendency of the ICC Paris arbitration. On March 22, 2 2010, the Brazilian District Court granted the preliminary order, finding that: 8 “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. 9 App’x at 798 ¶ 73. SBT and Prime Carbon appealed the Brazilian District Court’s 3 4 5 6 7 10 order to the Court of Justice, Thirteenth District Court of Rio de Janeiro (the 11 “Brazilian Appeals Court”). On March 31, 2010, the Brazilian Appeals Court 12 upheld the Brazilian District Court’s order because “it [wa]s certain that [SBT 13 and Prime Carbon] d[id] not provide evidence to ‘prove’ that they have sufficient 14 ‘means’ for ‘in theory’ honoring the mentioned debt (that appears to be ‘partly’ 15 acknowledged).” App’x at 798 ¶ 74. During the week the appeal was pending, 16 however, Prime Carbon left port with the pig iron cargo and appellants were 17 thereafter unable to secure relief in the Brazilian action. VI. 18 Appellants’ Attempts to Collect on the Arbitral Award 19 20 On January 24, 2012, the SBT bankruptcy administrator issued a final report and, on January 27, 2012, SBT’s bankruptcy was declared closed. Because 21 1 SBT had transferred almost all of its assets to Prime Carbon, appellants were 2 unable to enforce their award from the ICC Paris against SBT. When appellants 3 sent notices to SBT related companies, most did not reply and those that replied 4 denied involvement with SBT. Appellants allege they were also unable to pursue 5 claims against Prime Carbon because appellees had transferred Prime Carbon’s 6 ownership stake in Primetrade USA to AMCI Holdings, Inc., a United States 7 company under the ownership of Mende and Kundrun. 8 9 VII. The Enforcement Action On April 18, 2013, appellants filed an action to enforce their foreign 10 arbitral award in the district court for the Southern District of New York, seeking 11 to enforce the award against SBT’s “alter egos” and “successor[s] in interest” as 12 well as to recover on state law fraud claims (the “Enforcement Action”). App’x at 13 37. On July 30, 2013, appellees filed a motion to dismiss the Enforcement Action 14 on the grounds that, among other things, forum in the United States was 15 improper (forum non conveniens), that the action was an improper effort to 16 modify the award, and that appellants were precluded from asserting the state 17 law fraud claims because their fraud claims had been denied by the ICC Paris. 22 1 Appellants assert that while briefing was “ongoing” in the Enforcement Action, 2 unbeknownst to appellants, SBT was deleted from the Swiss Commercial 3 Register on September 30, 2013. Appellants’ Br. at 19 (citing App’x at 1249 & n.6). 4 Appellants also allege that appellees never disclosed this fact to the district court 5 in their reply brief or in any of their other motions in the Enforcement Action. On April 9, 2014 and again on March 16, 2015,4 the district court dismissed 6 7 the Enforcement Action, holding that appellants could enforce the award only 8 after the award was confirmed in Switzerland or another court of competent 9 jurisdiction, and dismissed the state law fraud claims on the basis that appellants 10 were precluded from asserting them. Enforcement Decision, 2015 WL 1190137, at 11 *1, *8 *9 (dismissing enforcement action); CBF Indústria de Gusa S/A/ v. AMCI 12 Holdings, Inc., 14 F. Supp. 3d 463, 473 79 (S.D.N.Y. 2014) (hereinafter “Initial 13 Order”) (dismissing enforcement claim for failure to file confirmation action and 14 dismissing fraud claims). The district court held that under Orion Shipping & The district court initially granted appellants leave to amend their complaint. CBF Indústria de Gusa S/A/ v. AMCI Holdings, Inc., 14 F. Supp. 3d 463, 480 (S.D.N.Y. 2014) (hereinafter “Initial Order”). After appellants did so, however, the district court again granted appellees’ motion to dismiss. For the sake of brevity, we will discuss the district court’s reasoning as outlined in both decisions together. 4 23 1 Trading Co., Inc. v. E. States Petroleum Corp., 312 F.2d 299, 301 (2d Cir.), cert. denied, 2 373 U.S. 949 (1963), appellants could not pursue enforcement of an arbitral award 3 under the Convention for the Enforcement and Recognition of Foreign Arbitral 4 Awards (the “New York Convention”) and its implementing legislation, Chapter 5 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq., without first confirming the 6 award. Enforcement Decision, 2015 WL 1190137, at *8 *9; Initial Order, 14 F. 7 Supp. 3d at 476 79. The district court held that Orion required a two step process 8 by which appellants were required to confirm the award prior to seeking 9 enforcement of that award. Initial Order, 14 F. Supp. 3d at 478 79. Appellants had 10 proposed a “carve out” whereby confirmation was not required when 11 confirmation was made impossible by appellees’ alleged fraudulent acts. See 12 Enforcement Decision, 2015 WL 1190137, at *8. Appellants argued in support that 13 the confirmation “‘prerequisite should not apply where alter ego defendants, 14 through their own intentional wrongdoing, foreclosed any opportunity to 15 confirm the award.” Id. (internal quotation marks and citation omitted). The 16 district court rejected appellants’ argument, reasoning that this proposed 17 exception would “undermine ‘the twin goals of arbitration, namely, settling 24 1 disputes efficiently and avoiding long and expensive litigation.’” Id. at *9 2 (quoting Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 3 85, 90 (2d Cir. 2005)). The district court also dismissed appellants’ five causes of action for fraud 4 5 on the basis that the claims sought “a remedy previously sought by [appellants] 6 in the ICC [a]rbitration” and therefore were barred under a theory of issue 7 preclusion. Initial Order, 14 F. Supp. 3d at 480. The district court observed that, 8 as it sat in secondary jurisdiction with regard to appellants’ arbitral award, it 9 could not modify that award either during the enforcement of the award or 10 pursuant to appellants’ fraud based causes of action. Enforcement Decision, 2015 11 WL 1190137, at *9 (citing Initial Order, 14 F. Supp. 3d at 480); Initial Order, 14 F. 12 Supp. 3d at 480. VIII. The Confirmation Action 13 14 In response to the district court’s initial ruling that Orion required 15 appellants to confirm their award prior to seeking its enforcement, appellants 16 initiated an action on April 29, 2014 to confirm the arbitral award in the same 17 district court (the “Confirmation Action”). As a legal entity, however, SBT was 25 1 effectively a nullity after it was deleted from the Swiss Commercial Register. See 2 Peter Forstmoser et al., Swiss Company Law § 56, N 153 (1996) (“A practical effect is, 3 however, had by the striking of the corporation from the register, as this means 4 the corporation is no longer able to act externally: it is no longer able to . . . be sued 5 or have debt collection proceedings filed against it.”(italics in original)). As a 6 result, the district court held that, under Rule 17(b) of the Federal Rules of Civil 7 Procedure, SBT lacked capacity to be sued because it was no longer a corporate 8 entity according to Swiss law. CBF Indústria de Gusa S/A v. Steel Base Trade AG, 9 No. 14 Civ. 3034, 2015 WL 1191269, at *3 (S.D.N.Y. Mar. 16, 2015) (hereinafter 10 11 “Confirmation Decision”). The district court also held that appellees were not judicially estopped 12 from asserting SBT’s lack of capacity as a defense. Appellants had argued that 13 “[appellees] asserted repeatedly that Switzerland and France provided adequate 14 forums for [appellants’] claims [against SBT] and, indeed, were the proper 15 forums for this action[,]” thereby estopping appellees from arguing SBT lacked 16 capacity to be sued in any fora. Confirmation Decision, 2015 WL 1191269, at *3 17 (internal quotation marks omitted). The district court noted that, under Second 26 1 Circuit precedent, a party may be judicially estopped from asserting a position if 2 “(1) the party took an inconsistent position in a prior proceeding and (2) that 3 position was adopted by the first tribunal in some manner, such as by rendering 4 a favorable judgment.” Id. (quoting Holtz v. Rockefeller & Co., 258 F.3d 62, 80 (2d 5 Cir. 2001) and citing Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 6 8 (2d 6 Cir. 1999)). The district court noted that “[t]he purposes of the doctrine are to 7 preserve the sanctity of the oath and to protect judicial integrity by avoiding the 8 risk of inconsistent results in two proceedings.” Id. (quoting Mitchell, 190 F.3d at 9 6). But the district court held that, because the Enforcement Action was not 10 dismissed on the grounds of forum non conveniens, the second prong of Holtz 11 did not apply and appellees were therefore not judicially estopped from making 12 the argument that SBT presently lacked capacity to be sued. Id. at *4. 13 14 IX. Appeal Appellants timely filed their appeals from both the Enforcement Decision 15 (No. 15 1133) and the Confirmation Decision (No. 15 1146). In their consolidated 16 appeals, appellants argue, in relevant part, that: (1) the district court erred in 17 holding that Orion Shipping & Trading Co., 312 F.2d at 300 01, required appellants 27 1 to confirm their foreign arbitral award prior to enforcement; (2) the district court 2 erred in dismissing appellants’ fraud claims on the basis of issue preclusion; and 3 (3) the district court erred in determining that equitable estoppel did not 4 preclude appellees from using SBT’s immunity from suit as a basis for dismissing 5 the Confirmation Action. Appellees contest each of appellants’ arguments and further argue in 6 7 response that this court should affirm the district court’s dismissal of appellants’ 8 Enforcement Action and Confirmation Action on the alternative grounds of 9 forum non conveniens and international comity. DISCUSSION 10 11 12 13 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 14 15 York Convention as well as its contract interpretation de novo; findings of fact are 16 reviewed for clear error.” VRG Linhas Aereas S.A. v. MatlinPatterson Glob. 17 Opportunities Partners II L.P., 717 F.3d 322, 325 (2d Cir. 2013) (citations omitted). 28 1 b. Analysis 2 This action arises under the United Nations Convention on the 3 Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 4 U.S.T. 2517. The United States acceded to the New York Convention on 5 September 30, 1970, and it entered into force in the United States on December 6 29, 1970. Recognition and Enforcement of Foreign Arbitral Awards, June 10, 7 1958, 21 U.S.T. 2517 (hereinafter “N.Y. Convention”). 8 The New York Convention only applies to “the recognition and 9 enforcement of arbitral awards made in the territory of a State other than the 10 State where the recognition and enforcement of such awards are sought” and to 11 “arbitral awards not considered as domestic awards in the State where their 12 recognition and enforcement are sought.” N.Y. Convention, art. I(1). According 13 to the Restatement (Third) of the U.S. Law of International Commercial 14 Arbitration, an arbitral award is “made” in the country of the “arbitral seat,” 15 which is “the jurisdiction designated by the parties or by an entity empowered to 16 do so on their behalf to be the juridical home of the arbitration.” Restatement 17 (Third) of the U.S. Law of Int’l Commercial Arbitration §1 1 (s), (aa) (Am. Law 29 1 Inst., Tentative Draft No. 2, 2012). Thus, the New York Convention applies to 2 arbitral awards “made” in a foreign country that a party seeks to enforce in the 3 United States (known as foreign arbitral awards), to arbitral awards “made” in 4 the United States that a party seeks to enforce in a different country, and to 5 nondomestic arbitral awards that a party seeks to enforce in the United States. 6 See, e.g., Restatement (Third) of the U.S. Law of Int’l Commercial Arbitration §1 1 7 (i), (k), (o) (Am. Law Inst., Tentative Draft No. 2, 2012). 8 9 Here, the parties set the seat of the arbitration as the ICC Paris in Paris, France. The arbitral award which appellants seek to enforce was rendered by the 10 ICC Paris under French law. Initial Order, 14 F. Supp. 3d at 474. The parties are 11 thus correct that the New York Convention governs this case as a matter of 12 international arbitration law. Since the arbitral award was made in France while 13 recognition and enforcement is sought in the Southern District of New York, this 14 litigation presents a classic case of a foreign arbitral award. 15 Under the New York Convention, the country in which the award is made 16 “is said to have primary jurisdiction over the arbitration award.” Karaha Bodas Co., 17 L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111, 115 30 1 n.1 (2d Cir. 2007) (internal quotation marks omitted) (hereinafter “Karaha Bodas 2 2d Cir.”). “The [New York] Convention specifically contemplates that the state in 3 which, or under the law of which, [an] award is made, will be free to set aside or 4 modify an award in accordance with its domestic arbitral law and its full 5 panoply of express and implied grounds for relief.” Yusuf Ahmed Alghanim & 6 Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997) (citing N.Y. Convention, 7 art. V(1)(e)). Here, that country is France because the parties agreed to arbitrate 8 before the ICC Paris. “All other signatory States are secondary jurisdictions, in 9 which parties can only contest whether that State should enforce the arbitral 10 award.” Karaha Bodas 2d Cir., 500 F.3d at 115 n.1 (citation omitted). “[C]ourts in 11 countries of secondary jurisdiction may refuse enforcement only on the limited 12 grounds specified in Article V” of the New York Convention. Id. (citation 13 omitted); Yusuf Ahmed Alghanim & Sons, 126 F.3d at 23 (“[T]he [New York] 14 Convention is equally clear that when an action for enforcement is brought in a 15 foreign state, the state may refuse to enforce the award only on the grounds 16 explicitly set forth in Article V of the [New York] Convention.”). The district 31 1 court here sits in secondary jurisdiction with respect to the foreign arbitral award 2 at issue. Initial Order, 14 F. Supp. 3d at 474. 3 Chapter 2 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 201 et seq., 4 implements the United States’ obligations under the New York Convention. See 5 Scherk v. Alberto Culver Co., 417 U.S. 506, 520 n.15 (1974). Section 203 provides 6 that original jurisdiction for “[a]n action or proceeding falling under the [New 7 York] Convention” lies in the United States federal district courts. 9 U.S.C. § 203. 8 Under Section 202, actions or proceedings that “fall[] under the [New York] 9 Convention” include “arbitration agreement[s] or arbitral award[s] arising out of 10 a legal relationship, whether contractual or not, which is considered as 11 commercial” between any parties, unless both parties are citizens of the United 12 States and “that relationship involves [neither] property located abroad, [nor] 13 envisages performance or enforcement abroad, [n]or has some other reasonable 14 relation with one or more foreign states.” 9 U.S.C. § 202. As the instant case 15 involves non U.S. citizens—all of the appellants, for example, are Brazilian 16 corporate entities—this case properly falls under Chapter 2 of the FAA as well as 17 under the New York Convention. 32 1 “The goal of the [New York] Convention, and the principal purpose 2 underlying American adoption and implementation of it, was to encourage the 3 recognition and enforcement of commercial arbitration agreements in 4 international contracts and to unify the standards by which agreements to 5 arbitrate are observed and arbitral awards are enforced in the signatory 6 countries.” Scherk, 417 U.S. at 520 n. 15 (citations omitted). Thus, both the New 7 York Convention and its implementing legislation in Chapter 2 of the FAA 8 “envision a single step process for reducing a foreign arbitral award to a 9 domestic judgment.” Amicus Curiae Memorandum Br. at 6. 10 Under the New York Convention, this process of reducing a foreign 11 arbitral award to a judgment is referred to as “recognition and enforcement.” 12 N.Y. Convention, arts. III, IV, V. “Recognition” is the determination that an 13 arbitral award is entitled to preclusive effect; “Enforcement” is the reduction to a 14 judgment of a foreign arbitral award (as contrasted with a nondomestic arbitral 15 award, discussed below). Restatement (Third) of the U.S. Law of Int’l 16 Commercial Arbitration §1 1(l), (z) (Am. Law Inst., Tentative Draft No. 2, 2012). 33 1 Recognition and enforcement occur together, as one process, under the New 2 York Convention. N.Y. Convention, arts. III, IV, V. Chapter 2 of the FAA implements this scheme through Section 207, which 3 4 provides that any party may, “[w]ithin three years after an arbitral award . . . is 5 made, . . . apply to any court having jurisdiction under this chapter for an order 6 confirming the award.” 9 U.S.C. § 207. Additionally, Chapter 2 of the FAA 7 provides that “[t]he court shall confirm the award unless it finds one of the 8 grounds for refusal or deferral of recognition or enforcement of the award 9 specified in the [New York] Convention” at Article V. 9 U.S.C. § 207. Read in 10 context with the New York Convention, it is evident that the term “confirm” as 11 used in Section 2075 is the equivalent of “recognition and enforcement” as used 12 in the New York Convention for the purposes of foreign arbitral awards. As the Section 207’s use of the term “confirm” may be one source of the confusion we now attempt to rectify. See, e.g., VRG Linhas, 717 F.3d at 325 (noting first that “a party may petition a United States district court to confirm a foreign arbitral award that the party received within the previous three years” before explaining that “the [New York] Convention allows courts to refuse to recognize a foreign arbitral award” in certain circumstances (emphases added)); Frontera Res. Azer. Corp. v. State Oil Co. of Azer. Rep., 582 F.3d 393, 396 97 (2d Cir. 2009) (using the terms “confirm” and “confirmation” to describe the process of enforcement of a foreign arbitral award). 5 34 1 United States as amicus curiae explained, “the ‘confirmation’ proceeding under 2 Chapter Two of the FAA fulfills the United States’ obligation under the [New 3 York] Convention to provide procedures for ‘recognition and enforcement’ of 4 [New York] Convention arbitral awards.” Amicus Curiae Memorandum Br. at 7. 5 A single proceeding, therefore, “facilitate[s] the enforcement of arbitration 6 awards by enabling parties to enforce them in third countries without first 7 having to obtain either confirmation of such awards or leave to enforce them 8 from a court in the country of the arbitral situs.” Karaha Bodas Co., L.L.C. v. 9 Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357, 366 67 (5th 10 6 Cir. 2003) (footnote omitted). This, in fact, was the entire purpose of the New York Convention, which 11 12 “succeeded and replaced the Convention on the Execution of Foreign Arbitral 13 Awards (‘Geneva Convention’), Sept. 26, 1927, 92 L.N.T.S. 301.” Yusuf Ahmed 14 Alghanim & Sons, 126 F.3d at 22. “The primary defect of the Geneva Convention 15 was that it required an award first to be recognized in the rendering state before Because the United States is a party to the New York Convention and participated in its negotiation, the government’s “interpretation of [the] treaty is entitled to great weight.” Medellín v. Texas, 552 U.S. 491, 513 (2008) (internal quotation marks and citations omitted). 6 35 1 it could be enforced abroad[.]” Id. (citation omitted). This was known as the 2 “double exequatur” requirement, and the New York Convention did away with it 3 “by eradicating the requirement that a court in the rendering state recognize an 4 award before it could be taken and enforced abroad.” Id. (citations omitted) 5 (stating that the New York Convention “intentionally liberalized procedures for 6 enforcing foreign arbitral awards” (internal quotation marks and citations 7 omitted)). 8 9 10 11 For the sake of completeness and in an effort to dispel confusion in this area, we will briefly discuss the components of and process for a nondomestic arbitral award. As noted above, in addition to covering foreign arbitral awards (awards 12 made in one country for which enforcement is sought in another, such as the 13 arbitral award at issue here), the New York Convention also applies to “arbitral 14 awards not considered as domestic awards in the State where their recognition 15 and enforcement are sought.” N.Y. Convention, art. I(1). Under Second Circuit 16 precedent, a nondomestic arbitral award is an award that is “made” in the 17 United States because the parties agreed to arbitrate before an arbitrator in the 36 1 United States, but which nonetheless falls under the New York Convention and 2 Chapter 2 of the FAA for one of two reasons: (1) it was “made within the legal 3 framework of another country, e.g., pronounced in accordance with foreign 4 law[,]” Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983), or (2) it 5 was decided under the laws of the United States but involves either entities that 6 are not U.S. citizens or, even if only U.S. citizens are involved, also involves 7 “property located abroad, [or] envisages performance or enforcement abroad, or 8 has some other reasonable relation with one or more foreign states.” 9 U.S.C. § 9 202; see Yusuf Ahmed Alghanim & Sons, 126 F.3d at 18 19 (noting “[t]he Seventh 10 Circuit similarly has interpreted [Section] 202 to mean that any commercial 11 arbitral agreement, unless it is between two United States citizens, involves 12 property located in the United States, and has no reasonable relationship with 13 one or more foreign states, falls under the [New York] Convention” (internal 14 quotation marks and citations omitted)). These types of awards are sometimes 15 referred to as Bergesen awards or U.S. Convention awards; we will use the term 16 nondomestic arbitral award for the sake of precision. 37 1 As a nondomestic arbitral award is made in the United States, a federal 2 district court sits in primary jurisdiction over a nondomestic arbitral award. See 3 Karaha Bodas 2d Cir., 500 F.3d at 115 n.1. The process by which a nondomestic 4 arbitral award is reduced to a judgment of the court by a federal court under its 5 primary jurisdiction is called “confirmation.” Restatement (Third) of the U.S. Law 6 of Int’l Commercial Arbitration §1 1(g) (Am. Law Inst., Tentative Draft No. 2, 7 2012). Under its primary jurisdiction in a confirmation proceeding, the district 8 court is, as this court has recognized, “free to set aside or modify an award in 9 accordance with its domestic arbitral law and its full panoply of express and 10 implied grounds for relief.” Yusuf Ahmed Alghanim & Sons, 126 F.3d at 23 (citing 11 N.Y. Convention, art. V(1)(e)); see also id. (“The confirmation of an arbitration 12 award is a summary proceeding that merely makes what is already a final 13 arbitration award a judgment of the court.” (internal quotation marks, brackets, 14 and citation omitted)). Once a nondomestic arbitral award has been confirmed, it 15 becomes a court judgment and is enforceable and entitled to full faith and credit 16 in any other court in the United States. See U.S. Const. art IV, § 1; see also 38 1 Hatzlachh Supply, Inc. v. Moishe’s Elecs. Inc., 848 F. Supp. 25, 28 (S.D.N.Y. 1994) 2 (noting domestic arbitral award must be confirmed before it is enforceable). 3 4 required to confirm their foreign arbitral award before they would be allowed to 5 enforce it. The New York Convention and Chapter 2 of the FAA require only that 6 the award creditor of a foreign arbitral award file one action in a federal district 7 court to enforce the foreign arbitral award against the award debtor. See Yusuf 8 Ahmed Alghanim & Sons, 126 F.3d at 22. Orion Shipping & Trading Co., a pre New 9 York Convention decision under Chapter 1 of the FAA and involving what Accordingly, the district court erred in holding that appellants were 10 would today be considered a nondomestic arbitral award, does not mandate a 11 different result. 312 F.2d at 300 01. Chapter 1 of the FAA, which generally covers 12 domestic arbitral awards that do not fall under the New York Convention, 13 applies to “actions and proceedings brought under” Chapter 2 only “to the 14 extent that [Chapter 1] is not in conflict with [Chapter 2] or the [New York] 15 Convention as ratified by the United States.” 9 U.S.C. § 208. To the extent, then, 16 that a confirmation proceeding is required for nondomestic arbitral awards, such 39 1 a procedure would be in conflict with the single step procedure mandated by 2 Chapter 2 and the New York Convention for foreign arbitral awards. 3 4 Orion Shipping & Trading Co., Productos Merchantiles E Industriales, S.A. v. Faberge 5 USA, Inc., 23 F.3d 41 (2d Cir. 1994), Overseas Private Investment Corp. v. Marine 6 Shipping Corp., No. 02 Civ. 475, 2002 WL 31106349 (S.D.N.Y. Sept. 19, 2002), and 7 Sea Eagle Maritime, Ltd. v. Hanan Int’l Inc., No. 84 Civ. 3210, 1985 WL 3828 8 (S.D.N.Y. Nov. 14, 1985), all involve nondomestic arbitral awards over which the 9 federal district court sits in primary jurisdiction rather than secondary None of the other cases the district court cites are to the contrary. Like 10 jurisdiction. See Productos, 23 F.3d at 43 (arbitration occurred in New York); 11 Overseas Private Inv., 2002 WL 31106349, at *1 (parties agreed to arbitration in 12 Washington, D.C. under the rules of the American Arbitration Association); Sea 13 Eagle, 1985 WL 3828, at *1 (noting parties “agreed to arbitration in New York”). 14 On the other hand, one of the cases cited by the district court—Arbitration between 15 Monegasque De Reassurances S.A.M. v. Nak Naftogaz of Ukraine, 311 F.3d 488, 491 16 (2d Cir. 2002) (hereinafter “Monde Re”)—did involve a foreign arbitral award. 17 There, however, although the award creditor had sought confirmation of the 40 1 foreign award, this circuit never held that such confirmation was a necessary 2 precondition to enforcement of a foreign arbitral award because the circuit never 3 reached the substantive contentions of the parties, instead dismissing the action 4 on an alternative ground. Id. at 495. 5 The confusion regarding whether parties need to confirm a foreign arbitral 6 award is understandable because Section 207 uses the term “confirm” to describe 7 the process by which a district court acts under its secondary jurisdiction to 8 recognize and enforce a foreign arbitral award. 9 U.S.C. § 207; see, e.g., VRG 9 Linhas, 717 F.3d at 325 (employing the term “confirm” as it is used in 9 U.S.C. § 10 207 to describe the process by which the district court sat in secondary 11 jurisdiction over a foreign arbitral award). The Restatement (Third) of the U.S. 12 Law of International Commercial Arbitration indicates that the proper term for 13 the single step process in which a federal district court engages when it sits in 14 secondary jurisdiction over a foreign arbitral award is “Enforcement,” in contrast 15 to the process in which a federal district court engages when it sits in primary 16 jurisdiction over a nondomestic arbitral award, which is called “Confirmation.” 17 Restatement (Third) of the U.S. Law of Int’l Commercial Arbitration §1 1(g), (l) 41 1 (Am. Law Inst., Tentative Draft No. 2, 2012). In order to avoid such confusion in 2 the future, we encourage litigants and district courts alike to take care to specify 3 explicitly the type of arbitral award the district court is evaluating (domestic, 4 nondomestic, or foreign), whether the district court is sitting in primary or 5 secondary jurisdiction, and, accordingly, whether the action seeks confirmation 6 of a domestic or nondomestic arbitral award under the district court’s primary 7 jurisdiction or enforcement of a foreign arbitral award under its secondary 8 jurisdiction. 9 c. Applicable Law for an Enforcement Action 10 Here, appellants properly sought to have the district court enforce a 11 foreign arbitral award under its secondary jurisdiction. On remand, therefore, we 12 instruct the district court to evaluate appellants’ Enforcement Action, 13 particularly appellants’ effort to reach appellees as alter egos of SBT, under the 14 standards set out in the New York Convention and Chapter 2 of the FAA. 15 The New York Convention provides that “[r]ecognition and enforcement 16 of [a foreign arbitral] award may be refused . . . only if [the requesting] party 17 furnishes to the competent authority where the recognition and enforcement is 42 1 sought, proof that” one of five enumerated conditions has been met. N.Y. 2 Convention, art. V(1). Here, the “competent authority” is the federal district 3 court to which the award creditor has applied for enforcement. See 9 U.S.C. § 203. 4 The five conditions laid out under the New York Convention are: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 (a) The parties to the [arbitration] agreement referred to in article II [of the New York Convention] were, under the law applicable to them, under some incapacity, or the said agreement is not valid under 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; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The 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, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 43 1 N.Y. Convention, art. V(1) (italics in original). The burden of proving any one of 2 these five conditions rests with the party challenging the arbitral award, here 3 appellees. Id. 4 The New York Convention also states that the federal district court, as the 5 “competent authority[,]” may refuse to enforce the foreign arbitral award if the 6 court determines that “(a) [t]he subject matter of the difference is not capable of 7 settlement by arbitration under the law of [the United States]; or (b) [t]he 8 recognition or enforcement of the award would be contrary to the public policy 9 of [the United States].” N.Y. Convention, art. V(2) (italics in original). 10 The New York Convention additionally provides that a signatory State 11 “shall recognize arbitral awards as binding and enforce them in accordance with 12 the rules of procedure of the territory where the award is relied upon, under the 13 conditions laid down in the following articles.” N.Y. Convention, art. III. The 14 New York Convention clarifies that this means that “[t]here shall not be imposed 15 substantially more onerous conditions or higher fees or charges on the 16 recognition or enforcement of arbitral awards to which this Convention applies 44 1 than are imposed on the recognition or enforcement of domestic arbitral 2 awards.” Id. 3 This Court has previously held that the question of whether a non 4 signatory may have a foreign arbitral judgment enforced against it by a federal 5 district court sitting in secondary jurisdiction falls under the first category by 6 which a federal district court could refuse to enforce a foreign arbitral award of 7 its own volition: “the subject matter of the difference is not capable of settlement 8 by arbitration under the law of the country in which enforcement is sought.” 9 VRG Linhas, 717 F.3d at 325 (internal quotation marks and citation omitted); see 10 11 N.Y. Convention, art. V(2)(a). This Court has also explained, based on Supreme Court precedent, that 12 there are three questions involved in determining this issue: (1) whether the 13 federal district court or the arbitrator is to decide question (2); (2) whether “the 14 merits of the dispute” are to be arbitrated or decided by the court—the “question 15 of arbitrability”; and (3) the merits of the dispute. VRG Linhas, 717 F.3d at 325 16 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995)). The second 17 question of “[w]hether a given dispute is arbitrable—and the resulting award 45 1 enforceable—is [] a question to be decided under United States arbitration law. 2 So too is the [first] question of who shall decide a dispute’s arbitrability.” Id. 3 (citing Sarhank Grp. v. Oracle Corp., 404 F.3d 657, 661 (2d Cir. 2005)). 4 Regarding the first question, we have further explained “questions of 5 arbitrability are to be sent to arbitration if and only if the parties clearly and 6 unmistakably expressed their intention to do so.” Id. at 325 26 (citing First 7 Options, 514 U.S. at 945, and Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 8 (2002)). “Thus a court must begin by deciding whether the parties before it 9 clearly and unmistakably committed to arbitrate questions regarding the scope 10 of their arbitration agreement.” Id. at 326. “If—but only if—the answer is no, the 11 court must then proceed to determine on its own whether the parties’ dispute 12 falls within the scope of their agreement to arbitrate.” Id. 13 “When deciding whether the parties agreed to arbitrate a certain matter 14 (including arbitrability), courts generally . . . should apply ordinary state law 15 principles that govern the formation of contracts.” First Options, 514 U.S. at 944 16 (citations omitted). Courts, however, “should not assume that the parties 17 intended to arbitrate arbitrability unless there is clear and unmistakable evidence 46 1 that they did so.” Id. (internal quotation marks, brackets, and citations omitted). 2 This standard for the first question differs from the standard applicable to the 3 second question. For the second question, courts look to “general principles of 4 contract law,” and will find an agreement to arbitrate when “the totality of the 5 evidence supports an objective intention to agree to arbitrate.” Sarhank Grp., 404 6 F.3d at 662. 7 8 Contracts, which gave rise to the foreign arbitral award at issue in the instant 9 appeal, provide clear and unmistakable evidence that the parties to the Contracts Accordingly, on remand, the district court must first consider whether the 10 agreed to have an arbitrator decide whether they decided to arbitrate the 11 question of whether a nonsignatory could be bound to an award under the 12 Contracts. If the district court determines that the parties to the Contracts did 13 agree to have an arbitrator decide whether they agreed to arbitrate the question 14 of whether a nonsignatory can be bound, then the district court must refuse to 15 decide the issue. If, on the other hand, the district court determines that the 16 parties to the Contracts did not agree to have an arbitrator decide whether they 17 agreed to arbitrate that question, then the district court must, proceeding to the 47 1 second question of First Options, determine whether, under general principles of 2 contract law, the Contracts state that the question of whether a nonsignatory can 3 be bound is, in fact, to be arbitrated. If the district court determines the Contracts 4 require the question to be arbitrated, then the question must go to the arbitrator. 5 If, however, the district court determines that the question of whether a 6 nonsignatory can be bound was not required to be arbitrated under the 7 Contracts, then the district court must turn to the merits of that question. 8 9 express no opinion, we provide the following guidance on the issue, which is not In case the district court reaches the merits, a determination on which we 10 meant to be exhaustive. This Court has previously held that “a nonsignatory 11 party may be bound to an arbitration agreement if so dictated by the ordinary 12 principles of contract and agency.” Thomson CSF, S.A. v. Am. Arbitration Ass’n, 64 13 F.3d 773, 776 (2d Cir. 1995) (internal quotation marks and citations omitted). 14 “These principles include (1) incorporation by reference; (2) assumption; (3) 15 agency; (4) veil piercing/alter ego; and (5) estoppel.” Smith/ Enron Cogeneration 16 Ltd. P’ship, Inc. v. Smith Cogeneration Int’l, Inc., 198 F.3d 88, 97 (2d Cir. 1999) 17 (internal quotation marks and citation omitted). Determinations under these 48 1 principles, especially the veil piercing/alter ego principle raised in the instant 2 case, “are often fact specific and differ with the circumstances of each case.” Id. 3 (internal quotation marks and citation omitted). Nonetheless, courts will apply 4 the veil piercing/alter ego theory of liability “in two broad situations: to prevent 5 fraud or other wrong, or where a parent dominates and controls a subsidiary.” 6 Thomson CSF, 64 F.3d at 777 (citations omitted). 7 8 district court on remand. 9 10 11 12 We leave further legal and factual development of these issues to the II. The District Court Erred in Dismissing Appellants’ Fraud Claims Under the Doctrine of Issue Preclusion a. Standard of Review “On appeal from a dismissal under [Federal] Rule [of Civil Procedure] 13 12(b)(1), we review the [district] court’s factual findings for clear error and its 14 legal conclusions de novo.” Cortlandt St. Recovery Corp. v. Hellas Telecomms. S.à.r.L., 15 790 F.3d 411, 417 (2d Cir. 2015) (citation omitted). This Court must “accept as 16 true all material allegations [in] the complaint” and “construe the complaint in 17 favor of the complaining party.” Id. (internal quotation marks and citation 18 omitted). The complaining party “bears the burden of alleging facts that 49 1 affirmatively and plausibly suggest that it has standing to sue.” Id. (internal 2 quotation marks, brackets, and citation omitted). 3 We also review “de novo a district court’s decision to dismiss a complaint 4 pursuant to [Federal] Rule [of Civil Procedure] 12(b)(6), accepting all factual 5 allegations as true and drawing all reasonable inferences in the plaintiff’s favor.” 6 Crawford v. Cuomo, 796 F.3d 252, 256 (2d Cir. 2015) (citation omitted). “To survive 7 a 12(b)(6) motion, the complaint must contain factual allegations that plausibly 8 give rise to an entitlement to relief.” Id. (citation omitted). 9 10 b. Analysis The district court dismissed appellants’ five causes of action for fraud on 11 the basis that these claims sought “a remedy previously sought by [appellants] in 12 the ICC Arbitration . . . [and] are therefore barred.” Initial Order, 14 F. Supp. 3d 13 at 480 (citations omitted). 14 We understand the district court’s finding to be one of as issue preclusion, 15 i.e., that appellants, having already had a “full and fair opportunity” to litigate 16 their fraud claims and having received an unfavorable determination from the 17 ICC Paris, are not permitted to relitigate the issue in the federal district court in 50 1 an attempt to achieve a more favorable outcome. See Kulak v. City of New York, 88 2 F.3d 63, 72 (2d Cir. 1996). 3 “It is settled law that the doctrine of issue preclusion is applicable to issues 4 resolved by an earlier arbitration.” Khandhar v. Elfenbein, 943 F.2d 244, 247 (2d 5 Cir. 1991) (internal quotation marks, brackets, and citations omitted). The mere 6 fact, however, that an issue appears to have been resolved by an earlier 7 arbitration does not necessarily mean that issue preclusion applies. “An 8 arbitration decision may effect [issue preclusion] in a later litigation . . . [only] if 9 the proponent can show with clarity and certainty that the same issues were 10 resolved.” Bear, Stearns & Co., Inc. v. 1109580 Ontario, Inc., 409 F.3d 87, 91 (2d Cir. 11 2005) (internal quotation marks and citation omitted). 12 [Issue Preclusion] is permissible as to a given issue if[:] (1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue; [] (4) the resolution of the issue was necessary to support a valid and final judgment on the merits[;] . . . [and (5)] application of the doctrine is fair. Id. (internal quotation marks and citations omitted). 13 14 15 16 17 18 19 51 The Second Circuit, applying New York law, has further instructed district 1 2 courts to consider the following factors in determining whether a party has had a 3 full and fair opportunity to litigate the issue in a prior action: 4 8 the size of the claim, the forum of the prior litigation, the use of initiative, the extent of the litigation, the competence and experience of counsel, the availability of new evidence, indications of a compromise verdict, differences in the applicable law[,] and foreseeability of future litigation. King v. Fox, 418 F.3d 121, 130 (2d Cir. 2005) (internal quotation marks and citation 9 omitted). 5 6 7 10 Because issue preclusion is an equitable doctrine, the Second Circuit and 11 federal courts adhere to the maxim that “[h]e who comes into equity must come 12 with clean hands.” Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240, 241 13 (1933). This principle, known as the “doctrine of unclean hands,” is “that the 14 equitable powers of this court can never be exerted [o]n behalf of one who has 15 acted fraudulently, or who by deceit or any unfair means has gained an 16 advantage. To aid a party in such a case would make this court the abettor of 17 iniquity.” PenneCom B.V. v. Merrill Lynch & Co., Inc., 372 F.3d 488, 493 (2d Cir. 18 2004) (internal quotation marks, brackets, and citations omitted). 52 1 Here, appellants argue that they were denied a full and fair opportunity to 2 litigate the merits of their fraud claims due to appellees’ fraud and misconduct 3 before the ICC Paris. Specifically, appellants claim that appellees misled the ICC 4 Paris as to the extent of the fraud committed by appellees, thereby leading the 5 ICC Paris to issue an unfavorable decision on the issue which appellees now seek 6 to enforce for purposes of issue preclusion. 7 8 PenneCom, 372 F.3d at 491 93. There, PenneCom alleged that Merrill Lynch 9 “devised a fraudulent scheme to dupe the arbitrators” which led to a decision Appellants’ allegations against appellees are very similar to those made in 10 unfavorable to PenneCom regarding the “extent of loss incurred by PenneCom” 11 under the arbitrated contract. Id. at 493. The district court determined that 12 collateral estoppel barred PenneCom from relitigating the extent of its loss under 13 the contract. Id. at 491. The Second Circuit reversed, holding that “before the 14 court invokes [issue preclusion,] . . . PenneCom must be allowed discovery to 15 collect evidence which might support a finding either that PenneCom was not 16 afforded a full and fair opportunity to prove its loss in the arbitration, or that 53 1 Merrill Lynch should be precluded by its own (alleged) misconduct from 2 asserting the equitable doctrine of [issue preclusion].” Id. at 493. 3 4 of fraud on the part of appellees, assertions we must accept as true at the motion 5 to dismiss stage, see Crawford, 796 F.3d at 256, we find the district court’s 6 application of the equitable doctrine of issue preclusion was inappropriate. On 7 remand, appellants should be allowed to conduct discovery with respect to the 8 fraud claims. Appellees may be given the opportunity to re raise the issue 9 preclusion issue after discovery at the district court’s discretion. We find the same outcome is warranted here. Given appellants’ assertions 13 The Court Declines to Affirm the Rulings of the District Court on the Alternative Grounds of Forum Non Conveniens and International Comity In addition to challenging appellants’ affirmative arguments on appeal, 14 appellees also urge this court to affirm the district court’s dismissal of appellants’ 15 Enforcement Action on the alternative grounds of forum non conveniens and 16 international comity. 10 11 12 17 18 III. “It is well settled that we may affirm [a district court’s decision] on any grounds for which there is a record sufficient to permit conclusions of law, 54 1 including grounds not relied upon by the district court.” In re Arab Bank, PLC 2 Alien Tort Statute Litig., 808 F.3d 144, 157 58 (2d Cir. 2015) (internal quotation 3 marks and citations omitted). We, however, have “discretion to choose not to do 4 so based on prudential factors and concerns.” Id. at 158 (citing Bacolitsas v. 86th & 5 3rd Owner, LLC, 702 F.3d 673, 681 (2d Cir. 2012)). 6 We decline to affirm the district court’s dismissal on the alternative 7 grounds of forum non conveniens and international comity here. We leave these 8 issues for consideration by the district court in the first instance should appellees 9 choose to raise them again. 10 We have considered all of appellees’ contentions in support of the 11 judgment dismissing the Enforcement Action and have found them to be without 12 merit. 13 14 CONCLUSION For the foregoing reasons, we hold that the district court erred in 15 dismissing appellants’ Enforcement Action because: (1) appellants are not 16 required to bring an action to confirm their foreign arbitral award before they 17 can seek to enforce it, and (2) appellants’ fraud claims are not barred by collateral 55 1 estoppel given appellants’ allegations that appellees engaged in fraud and 2 misconduct before the ICC Paris. We also hold that the appeal of the district 3 court’s dismissal of appellants’ Confirmation Action is moot given that 4 confirmation of a foreign arbitral award prior to enforcement is unnecessary 5 under the New York Convention and Chapter 2 of the FAA.7 Lastly, we decline 6 to affirm the district court’s dismissal of appellants’ Enforcement Action on the 7 alternative bases of forum non conveniens or international comity. Accordingly, 8 in No. 15 1133, we VACATE the district court’s judgment dismissing the 9 Enforcement Action and REMAND for further proceedings consistent with this 10 opinion. In No. 15 1146, we hold that the appeal of the judgment dismissing the 11 Confirmation Action is moot and accordingly DISMISS that appeal. Inasmuch as our decision of the appeal in the Enforcement Action moots the issue of whether the district court should have dismissed the Confirmation Action pursuant to Federal Rule of Civil Procedure 17(b)(2) on the ground that SBT lacks the capacity to be sued because of its removal 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.”), we need not and do not decide the capacity issue. 7 56
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