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Republic of Argentina v. AWG Group Ltd.

United States Court of Appeals, District of Columbia Circuit

July 3, 2018

Republic of Argentina, Appellant
v.
AWG Group Ltd., Appellee

          Argued September 19, 2017

          Appeal from the United States District Court for the District of Columbia (No. 1:15-cv-01057)

          Matthew D. Slater argued the cause and filed the briefs for appellant.

          Elliot Friedman argued the cause for appellee. With him on the brief was David Y. Livshiz.

          Before: Henderson and Griffith, Circuit Judges, and Williams, Senior Circuit Judge.

          OPINION

          GRIFFITH, CIRCUIT JUDGE:

         An arbitration panel determined that the Republic of Argentina was liable to AWG Group Ltd. for $20 million. Argentina challenged that decision in district court, arguing that a member of the arbitration panel had, with a connection to two of the parties to the proceeding, shown "evident partiality" under 9 U.S.C. § 10(a)(2), and that the way the panel reached its determination exceeded its authority under § 10(a)(4). The district court enforced the panel's award against Argentina, and we affirm.

         I

         In 1993, Argentina awarded a contract to Aguas Argentinas S.A. (AASA), a consortium of seven companies. Three were Argentine and four were not (AWG Group Ltd. ("AWG"), Sociedad General de Aguas de Barcelona S.A., Vivendi Universal, S.A. ("Vivendi"), and Suez). According to the contract, AASA agreed to invest in and operate Argentina's water services. By its terms, the contract was set to run through 2023 but allowed for earlier termination if either AASA or Argentina failed to live up to its commitments. Argentina also entered bilateral investment treaties with the home countries of the members of AASA promising fair and equitable treatment of their investments in Argentina (the "fair-treatment provisions"). These treaties also established arbitration procedures to resolve disputes that might arise from investments in the signatory countries.

         At the turn of this century, Argentina's economy fell into crisis, and its government responded with emergency regulatory measures. One measure unpegged Argentina's currency, the Argentine peso, from the U.S. dollar. Another froze the tariffs AASA could charge customers. Together these measures suppressed the peso's value and prevented AASA from increasing its prices, which led to a significant loss of revenue from its services. AASA had committed to repaying loans that were denominated in dollars and claimed that it could not pay for the quality of service that it had provided when the peso was more valuable unless something changed. Argentina denied AASA's repeated requests to alter the emergency measures or modify its obligations.

         In 2003, the non-Argentine members of AASA began arbitration proceedings at the International Centre for Settlement of Investment Disputes (the "Centre") in Washington, D.C. The gravamen of their claim was that Argentina had breached its contract by treating them unfairly. Among its defenses, Argentina maintained that its conduct was compelled by the need to protect its economy and provide safe water. Three years into the arbitration, Argentina terminated the contract on the ground that AASA had failed to keep the nation's water supply free from contaminants. The arbitration lasted twelve years. At its conclusion in April 2015, a unanimous panel rejected Argentina's defense that its conduct was necessary to protect its economy and water supply and concluded that Argentina had breached the contract by treating AASA unfairly. The panel later awarded the claimants the profits they would have realized had Argentina honored the fair-treatment provisions.

         In July 2015, Argentina brought suit in district court seeking to vacate the panel's award to AWG on two grounds. First, that the panel member selected by AASA was biased in favor of two of the non-Argentine consortium members. Although Argentina does not allege that the panel member had an outside interest in AWG, its fate in the arbitration was wrapped up with the fate of its fellow consortium members. Second, that the panel exceeded its authority by failing to credit Argentina's necessity defense and by compensating AASA with hypothetical profits earned after Argentina had lawfully terminated the contract. The district court rejected each of Argentina's arguments and granted AWG's cross-petition to enforce the award. Republic of Argentina v. AWG Grp. Ltd., 211 F.Supp.3d 335, 363 (D.D.C. 2016). Argentina timely appealed the district court's judgment.

         II

         The law of the United States governing arbitration is codified in the Federal Arbitration Act (the "Act"), 9 U.S.C. § 1 et seq., which incorporates the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517 (the "New York Convention"), in 9 U.S.C. §§ 201-08. The New York Convention is a multilateral treaty that requires signatory nations like the United States to honor the results of international arbitrations that comply with the treaty, but allows a court of the nation in which the arbitration was held to vacate the award if the proceeding violated that nation's domestic policy of fair adjudication. New York Convention art. V(2); 9 U.S.C. § 207; Enron Nigeria Power Holding, Ltd. v. Federal Republic of Nigeria, 844 F.3d 281, 283 (D.C. Cir. 2016); TermoRio S.A. v. Electranta S.P., 487 F.3d 928, 935-36 (D.C. Cir. 2007). Under the New York Convention, the district court had authority to enforce or, if the arbitration violated the standards of fair adjudication set out in § 10 of the Act, vacate the award. 9 U.S.C. § 203; see also § 10(a). We have jurisdiction under 28 U.S.C. § 1291 to hear Argentina's appeal of the district court's decision, and we review the court's legal conclusions de novo. See Kurke v. Oscar Gruss & Son, Inc., 454 F.3d 350, 355 (D.C. Cir. 2006).

         As a general matter, we will enforce an arbitration award unless given a compelling reason to suspect that the award resulted from an unfair process. See Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576, 588 (2008) ("[L]imited review [is] needed to maintain arbitration's essential virtue of resolving disputes straightaway."); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 221 (1985) ("[W]e rigorously enforce agreements to arbitrate . . . ."). Congress has pointedly endorsed private dispute resolution and directed courts to make the lawful judgments of arbitration panels effective. Epic Sys. Corp. v. Lewis, 138 S.Ct. 1612, 1621 (2018) ("[Congress] specifically directed [courts] to respect and enforce . . . parties' chosen arbitration procedures."); see also Preston v. Ferrer, 552 U.S. 346, 353 (2008) (describing the Act as establishing a national policy in favor of enforcing arbitration awards). Congress requires enforcement even when arbitration proceedings do not provide the full process protections that courts provide because the "primary purpose" of the Act is not to turn arbitration panels into private federal courts but to "ensure that private agreements to arbitrate are enforced according to their terms." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (internal quotation marks and citations omitted).

         If we interfere with an arbitration decision, it is only because the proceeding deviated significantly from the Act's standards of fair adjudication. Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 568 (2013) ("Under the [Act], courts may vacate an arbitrator's decision 'only in very unusual circumstances.'" (quoting First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 942 (1995))); see also Hall St. Assocs., 552 U.S. at 586 ("Section[] 10 . . . address[es] egregious departures from the parties' agreed-upon arbitration . . . ." (emphasis added)). The burden to prove that there was unfair process falls on the challenger's shoulders, and it is "onerous." Al-Harbi v. Citibank, N.A., 85 F.3d 680, 683 (D.C. Cir. 1996); see also Encyclopaedia Universalis S.A. v. Encyclopaedia Brittanica, Inc., 403 F.3d 85, 90 (2d Cir. 2005) (describing the burden on the challenger as a "heavy one"). If it were easy to call into question the fairness of an arbitration, losing parties would have every reason to challenge the process in court. Because arbitration's "essential virtue" is the avoidance of the length and expense of litigation, courts may grant relief to a disgruntled party only when its challenge ...


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