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Case of the Day: Albaniabeg Ambient v. Enel

The case of the day is Albaniabeg Ambient Sh.p.k. v. Enel S.p.A. (S.D.N.Y. 2016). BEG S.p.A., an Italian company, contracted with the government of Albania to build and operate a hydroelectric plant. BEG also had a contract with Enel S.p.A., another Italian firm, to study the feasibility of the project. Later, BEG had a similar contract with Enelpower S.p.A., an Enel subsidiary. The Enelpower contract had an agreement to arbitrate.

A dispute arose. BEG commenced an arbitration against Enelpower for breach of contract. The tribunal, seated in Rome, found that Enelpower was not liable to BEG. The Italian courts refused to vacate the award despite a claim that one of the arbitrators had a conflict of interest.

Later, Albaniabeg, a subsidiary of BEG, brought an action against Enel and Enelpower in the Albanian court. The claims were tort claims arising out of the hydroelectric project. The Albanian court entered a judgment for more than € 25 million against Enel and Enelpower, which was affirmed on appeal. The European Court of Human Rights rejected Enel and Enelpower’s challenge to the judgment.

Albaniabeg brought an action in the New York Supreme Court for recognition of the Albanian judgment. Continue reading Case of the Day: Albaniabeg Ambient v. Enel

Case of the Day: Goel v. Ramachandran

The case of the day is Goel v. Ramachandran (S.D.N.Y. 2011). Vikas Goel, a resident of Dubai, was the founder of eSys Technologies Pte Ltd., a computer equipment distributor organized under the laws of Sinagpore and doing business there. All of the shares of eSys were owned by Rainforest Trading Ltd., a British Virgin Islands holding company. In 2006, eSys was in need of capital, so it and Goel entered into a subscription agreement with Teledata Informatics, under which Teledata was to purchase 51% of eSys’s shares (technically, Teledata was purchasing shares of the holding company, Rainforest) for $105 million. The claim in the case was that instead of paying Goel and eSys for the shares, Teledata “repeatedly diverted small amounts of money that it had deposited into the Rainforest bank account” to two of the defendants, Bunge Ltd. and Bunge S.A., and to companies controlled by the other defendant, Anush Ramachandran, a resident of New York and an officer of Teledata.

Goel and eSys sued Ramachandran and Bunge in the New York Supreme Court, alleging that Ramachandran defrauded Goel and asserting claims for unjust enrichment, tortious interference, etc. Goel and eSys also initiated an arbitration in Singapore against Teledata under the subscription agreement’s arbitration clause, which required arbitration of all disputes related to the agreement.

Ramachandran removed the case to the federal court, and Goel and eSys moved to remand. Removal was governed by § 205 of the FAA, which provides:

Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. For the purposes of Chapter 1 of this title any action or proceeding removed under this section shall be deemed to have been brought in the district court to which it is removed.

The judge honed in on the interesting issue right away:

There are certainly cases involving non-signatories to an applicable arbitration agreement, both where a signatory defendant seeks to compel a non-signatory plaintiff to arbitrate its claims, and where a non-signatory defendant seeks to compel a signatory plaintiff. However, the Court has found no case where a non-signatory defendant has removed a case under § 205 as related to an arbitration agreement to which the defendant is not a party and also is not seeking to compel or participate in an arbitration.

Note that this is closely related to the observation I made in the post on Simmons v. Sabine River Authority, where the defendant removed the case under § 205 but then apparently did not seek to compel arbitration. Indeed, the court in the Goel case paid some attention to the Fifth Circuit’s precedents, including Acosta, which played a role in the Sabine River case.

The court adopted the Fifth Circuit’s broad construction of the “relates to” language in § 205, but even on that broad construction, it held that Ramachandran had not shown that the action related to the arbitration agreement. Since he was not a party to the arbitration and has refused to be bound by the arbitration’s outcome, there was no explanation of how the arbitration’s outcome could possibly affect the court case.

On the more interesting question—the question whether a defendant can remove a case under § 205 when it does not intend to compel arbitration or to seek to confirm an arbitral award— the court held that it lacked jurisdiction.

The court reviews the precedents, or rather the lack of precedents, that justified its decision. The decision also seems sound as a matter of policy. The policy of the FAA is to promote enforcement of agreements to arbitrate. But where the litigation really has nothing to do with the arbitration, the broad language of § 205 shouldn’t be used to give the defendant access to a federal forum that it otherwise would lack.

 

Case of the Day: Simmons v. Sabine River Authority

The Flood from the Sistine ChapelThe case of the day is Simmons v. Sabine River Authority of Louisiana (W.D. La. 2011). Simmons sued Louisiana government agencies and Entergy Corp. and affiliates on behalf of a purported class of landowners near the Sabine River. The claim was that the defendants caused a catastrophic flood by opening the floodgates of the Toledo Bend Dam in March 2001. The flood, according to Simmons, lasted forty days.

Simmons originally brought the action in the Louisiana state courts. The Louisiana governmental defendants filed preemptory exceptions of no cause of action (which, I take it, are the Louisiana equivalents of motion to dismiss for failure to state a claim on which relief can be granted), and apparently in order to save the claim, Simmons filed an amended complaint asserting claims under the Fifth and Fourteenth Amendments to the US Constitution. The state court thereafter dismissed the defendants’ exceptions.

Many years passed (the case was filed in 2002, the state court dismissed the exceptions in 2002, and before you know it, it was 2011). Simmons filed another amended complaint, this one asserting claims against Northfield Insurance Company and AEGIS, two insurers that allegedly had written policies that insured some of the damages asserted in the action. The defendants then unanimously filed a notice of removal, removing the case to the federal court.

The judge correctly found that the removal was grossly untimely under the statute governing removal in ordinary federal question cases. Simmons first asserted the federal claims in 2002, and the defendants had 30 days to remove. But the AEGIS policy contained an arbitration agreement that required arbitration (in the United States) of controversies arising out of or relating to the policy. The defendants asserted that the claim against AEGIS came within the scope of the arbitration clause and therefore cited 9 U.S.C. § 205 as an alternative basis for removal. The statute provides:

Where the subject matter of an action or proceeding pending in a State court relates to an arbitration agreement or award falling under the Convention, the defendant or the defendants may, at any time before the trial thereof, remove such action or proceeding to the district court of the United States for the district and division embracing the place where the action or proceeding is pending. The procedure for removal of causes otherwise provided by law shall apply, except that the ground for removal provided in this section need not appear on the face of the complaint but may be shown in the petition for removal. For the purposes of Chapter 1 of this title any action or proceeding removed under this section shall be deemed to have been brought in the district court to which it is removed.

Under Louisiana law, a statute allows an injured party to sue the wrongdoer’s insurer directly, and in such cases, the plaintiff can be bound by an arbitration clause in the insurance policy even though, of course, the plaintiff is not a party to the insurance company, and the judge found that under Louisiana law, the agreement bound the plaintiff. But the question remained whether the agreement fell under the New York Convention and whether the claim against AEGIS related to the policy, such that it fell within the scope of the arbitration agreement, as required by the statute for removal.

Did the Agreement Fall Under The Convention?

Under 9 U.S.C. § 202:

An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.

Under Fifth Circuit precedent, the agreement falls under the Convention if: (1) it is in writing; (2) it provides for arbitration in a state that is party to the Convention; (3) it arises out of a commercial legal relationship; and (4) at least one party to the agreement is not a US citizen. All four factors were met here, and thus the judge concluded that the arbitration agreement fell under the Convention.

Did the State Court Litigation Relate To The Arbitration Agreement?

The more difficult question was whether the state court case related to the arbitration agreement. “Related” is construed broadly. AEGIS’s best appellate precedent, Acosta v. Master Maintenance & Construction, 452 F.3d 373 (5th Cir. 2006), supported removal, but in Acosta, there was also a dispute about the insurance coverage between the insurer and the insured; there was no such dispute in AEGIS’s case. However, in an unpublished district court decision, Adams v. Oceaneering International (W.D. La. 2010), Judge Melançon permitted removal where the only dispute was between the injured plaintiff and the insurer, not the insurer and its insured, and on the strength of this precedent, Magistrate Judge Kay found that the claim related to the arbitration agreement.

One oddity about the case was that the judge did not stay the case to allow an arbitration to proceed. It’s unclear from the decision whether AETNA intended to move to compel arbitration. If the defendants simply used the FAA’s removal statute to get into federal court without any intention of arbitrating the AETNA claim, I wonder if this doesn’t point to a weakness in the statutory scheme. Once a defendant removes a case to federal court on New York Convention grounds, shouldn’t it be required to arbitrate the claim?

 

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