The Case of the Day is VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II LP (2d Cir. 2013). MatlinPatterson is a private equity fund based in New York. In 2007, Gol Linhas Aereas Inteligentes S.A., a Brazilian airline, acting through GTI, its subsidiary, purchased VRG from two MatlinPatterson subsidiaries, Varig Logistica S.A. and Volo do Brasil S.A. All of the parties I just named, except for MatlinPatterson itself, were signatories to the share purchase and sale agreement, though MatlinPatterson did sign several addenda to the agreement. In particular, MatlinPatterson signed Addendum 5, in which MatlinPatterson agreed not to compete with VRG or invest in its competitors for three years. The question in the case is whether the agreement to arbitrate in the main contract was incorporated in the Addendum so as to bind MatlinPatterson. Addendum 5 described itself as “aditando os termos do Contrato,” which VRG translated as “amending” the contract and MatlinPatterson translated as “supplementing” the contract.

Soon after the sale, a dispute about adjustments to the purchase price arose. VRG initiated an arbitration against MatlinPatterson under the ICC Rules. The tribunal, after a hearing, determined that MatlinPatterson had agreed to arbitrate and that the price dispute was within the scope of the agreement to arbitrate. Following a hearing on the merits, the tribunal issued an award in favor of VRG, finding that MatlinPatterson had made fraudulent misrepresentations. MatlinPatterson challenged the award in the Brazilian courts, “so far unsuccessfully.”

VRG sought confirmation of the award in New York in 2011. The judge refused to confirm the award, holding that even if MatlinPatterson had agreed to arbitration of the non-competition matters named in Addendum 5, it had not agreed to arbitrate price issues arising out of the main contract, which it had not signed. VRG appealed.

On appeal, the Second Circuit vacated and remanded. The quesiton, under § 207 of the FAA and Article V(2)(a) of the New York Convention, was whether the dispute was arbitrable under US law. Under First Options of Chicago v. Kaplan, 514 U.S. 938 (1995), the question of whether a court or the arbitrator is to decide questions of arbitrability is distinct from the question of arbitrability itself. The question of arbitrability goes to the arbitrator only if the parties “clearly and unmistakably expressed their intention” to have the arbitrator decide it. Under Second Circuit precedent, namely Shaw Group v. Triplefine International Corp., 322 F.3d 115 (2d Cir. 2003), an agreement to arbitrate under the ICC Rules implies an agreement to commit questions of arbitrability to the arbitrator. But the judge decided the question of arbitrability without first determining whether MatlinPatterson had made an agreement to arbitrate. His holding was essentially hypothetical: if there was an agreement to arbitrate, then it could not reach matters in the main contract but not in the Addendum that MatlinPatterson had signed.

On remand, then, the judge will have to determine whether there was an agreement to arbitrate in the first place. If so, then under circuit precedent, it was for the arbitrators to decide the arbitrability of the issues VRG raised in the arbitration, and the award should be confirmed (barring, I suppose, another argument under the New York Convention, though none is apparent from the decision). If not, then the award should not be confirmed, whatever the arbitrators concluded.