Opinion ID: 57447
Heading Depth: 1
Heading Rank: 4

Heading: .Collateral Attack on the Final Award

Text: Gulf Petro argues that a fair reading of its complaint shows that the RICO and state law claims are not disguised attempts to vacate or attack the Final Award. Rather, it contends that it has alleged a pattern of racketeering and conspiratorial conduct that, while arising in the context of arbitration proceedings, constitutes an independent violation of federal and state law and compels relief analytically distinct from vacatur. We disagree. Like the district court, we conclude that the claims asserted by Gulf Petro are no more, in substance, than a collateral attack on the Final Award itself. The district court relied on Corey v. New York Stock Exchange, 691 F.2d 1205 (6th Cir.1982), in determining that Gulf Petro's claims were an impermissible attack on the Final Award. In Corey, the plaintiff had initiated arbitration proceedings against Merrill Lynch after his investment portfolio suffered significant losses. Id. at 1207. The rules of the New York Stock Exchange (NYSE) governed the selection of the arbitration panel as well as the procedural rules to be followed, and an NYSE official was responsible for the preliminary arrangements of the arbitration and appointment of the panel. Id. at 1208. The arbitration panel ultimately dismissed the plaintiff's claim. Id. The arbitration at issue in Corey fell under Chapter One of the FAA, which provides for limited judicial review of an arbitral award in the federal district court of the district in which the award was made. See id. at 1212 (discussing the FAA). However, instead of seeking relief under the FAA, the plaintiff brought suit against the NYSE, alleging that he was deprived of a fair hearing because the NYSE official had selected the panel in violation of NYSE rules and had adjourned and rescheduled hearings over the plaintiff s objection. Id. at 1207. These allegations of wrongdoing fell squarely within the scope of § 10 of the FAA, which provides for vacatur of an award in cases of evident partiality of the arbitrators or adjournments resulting in prejudice. See id. at 1212. After concluding that the [FAA] provides the exclusive remedy for challenging acts that taint an arbitration award, the Sixth Circuit determined that the plaintiffs attempt to sue the NYSE . . . [was] no more, in substance, than an impermissible collateral attack on the award itself. Id. at 1211-12. The court explained its reasoning as follows: [The plaintiff's] claims constitute a collateral attack against the award even though [the plaintiff] is . . . requesting damages for the acts of wrongdoing rather than the vacation, modification or correction of the arbitration award. [The plaintiff] was not harmed by the selection of the arbitrators and the adjournments of the hearings in and of themselves. . . . Rather, he was harmed by the impact these acts had on the award. [The plaintiffs] complaint has no purpose other than to challenge the very wrongs affecting the award for which review is provided under section 10 of the [FAA]. Id. at 1213. NNPC also directs our attention to a similar case, Decker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 205 F.3d 906 (6th Cir.2000), in which the Sixth Circuit affirmed the dismissal of several contract and tort claims alleging wrongdoing in the course of an arbitration proceeding. The plaintiff in Decker was engaged in arbitration with Merrill Lynch when the chairperson of the arbitration panel revealed that his law firm had been hired by a Merrill Lynch subsidiary in connection with several real estate transactions. Id. at 908. The panel denied the plaintiff's motion to recuse the chairperson, proceeded with the arbitration, and issued an award. Id. Instead of seeking to vacate the award under the FAA, the plaintiff brought various claims against Merrill Lynch based on its hiring of the chairperson's law firm. Id. As in Corey, the court looked to the alleged harm suffered by the plaintiff, which did not result when the Merrill Lynch subsidiary hired the chairperson . . ., but instead resulted from the impact of this action on the arbitration award. Id. at 910. The ultimate objective in this damages suit, the court continued, was to rectify the alleged harm [the plaintiff] suffered by receiving a smaller arbitration award than she would have received in the absence of the chairperson's relationship with Merrill Lynch. Id. Because this objective should have been pursued by filing a motion to vacate under the FAA, the court concluded that the plaintiff's suit was a collateral attack requiring dismissal. Id. at 910-11. Although Corey and Decker involved allegations of wrongdoing in the context of domestic arbitrations, rather than international arbitrations, we find the reasoning employed in both cases on the question of when a claim constitutes a collateral attack on an arbitral award to be persuasive. In both cases, plaintiffs alleged wrongdoing in the course of an arbitration but did not explicitly seek to overturn or modify the award. In response, the Sixth Circuit examined the relationship between the alleged wrongdoing, purported harm, and arbitration award, and concluded that because the harm was not caused by the wrongdoing in and of itself, but rather by the impact of the acts complained of on the award, the claims were no more than collateral attacks on the award. With this methodology in mind, we turn to Gulf Petro's complaint. [3] Gulf Petro alleges two broad categories of wrongdoing on the part of NNPC, its officials and attorneys, and the arbitrators. First, it alleges that NNPC paid a $25 million bribe to the arbitrators in order to procure a favorable outcome in the slop oil arbitration. Second, it alleges that two of the arbitrators had a variety of business dealings and ex parte communications with NNPC and its attorneys that they failed to disclose prior to or during the arbitration. According to Gulf Petro, arbitrator Berkeley failed to disclose that he traveled, to Nigeria shortly before the arbitration to discuss the matter with NNPC, had previously served on an arbitration panel with members of the Nigerian government, engaged in internet and phone communications with NNPC officials and attorneys, accepted appointments from NNPC to serve on other arbitration panels, and had ongoing relationships with law firms that represented NNPC. Arbitrator Meakin allegedly failed to disclose that he had been associated with a Swiss law firm that represented NNPC. Based on these allegations, Gulf Petro asserts violations of RICO, the Texas DTPA, and Texas common law fraud and civil conspiracy. For each claim, Gulf Petro seeks the following damages: (1) costs and expenses of the arbitration and subsequent legal challenges; (2) lost expenses and profits that would have been awarded had the panel rendered a fair award; (3) reputational injury suffered as a consequence of not prevailing in the arbitration; and (4) lost business opportunities suffered as a consequence of not prevailing in the arbitration. Gulf Petro briefly contends that its claims cannot be construed as a collateral attack on the Final Award because they do not attempt to relitigate the facts and defenses that were raised in the prior arbitration In one sense, however, they do seek to relitigate certain issues, since Gulf Petro asks for as damages the award it believes it should have received in the arbitration, which would require an inquiry into questions of liability that were already presented to the arbitration panel. We do recognize that the specific allegations of bribery and corruption are separate from the contract dispute over slop oil that was the subject of the arbitration. However, it does not follow that these claims cannot be construed as a collateral attack. Limiting the concept of a collateral attack as Gulf Petro suggests would be squarely at odds with Corey and Decker, where the plaintiffs were found to be engaged in collateral attacks even though they did not attempt to relitigate the facts and defenses of the underlying disputes that had prompted arbitration, but instead were alleging that wrongdoing had tainted the arbitration proceedings and caused unfair awards. More broadly, Gulf Petro argues that the claims it advances and relief it seeks are analytically distinct from vacatur. However, this argument is belied by a close examination of the allegations and damages actually found in Gulf Petro's complaint. Gulf Petro contends that it has pled independent violations of federal and. state law, but the ultimate significance of the conduct it complains of can only be found in the effect that it had on the Final Award. Like the plaintiffs in Corey and Decker, Gulf Petro's harm was not caused by the alleged acts of wrongdoing in and of themselves. The harm in this case did not result when the arbitrators failed to disclose business dealings, engaged in ex parte communications with NNPC, or were bribed. Rather, it resulted from the impact that these acts had on the Final Award. The relief Gulf Petro seeksthe award it believes it should have received, as well as costs, expenses, and consequential damages stemming from the unfavorable award it did receiveshows that its true objective in this suit is to rectify the harm it suffered in receiving the unfavorable Final Award. Under the framework of the New, York Convention, the proper method of obtaining this relief is by moving to set aside or modify the award in a court of primary jurisdiction, Though cloaked in a variety of federal and state law claims, Gulf Petro's complaint amounts to no more than a collateral attack on the Final Award itself. B. Dismissal for Lack of Subject Matter Jurisdiction Gulf Petro also argues that its federal and state law claims cannot properly be the subject of a Rule 12(b)(1) dismissal for lack of subject matter jurisdiction. See 12(b)(1). We disagree. Because the Convention bars the litigation of claims of the type asserted by Gulf Petro in all but the courts of the primary jurisdiction, dismissal for lack of subject matter jurisdiction was appropriate in this, case. Gulf Petro first argues that there is no basis for the notion, that a complaint can be dismissed on subject matter jurisdictional grounds as a collateral attack on an arbitral award. It points out that in Corey and Decker, the complaints that were held to be collateral attacks were dismissed for failure to state a claim upon which relief can be granted or on summary judgment, and not for lack of subject matter jurisdiction. This argument misapprehends the significance of Corey and Decker to the instant case, which lies in the reasoning employed by the' Sixth Circuit in concluding that the claims asserted were collateral attacks on arbitration awards, and not in the final dispositions of the cases themselves. Corey and Decker were litigated in the shadow of the framework for judicial review of domestic arbitrations established by Chapter One of the FAA, while the instant case is being litigated in the shadow of the framework for international arbitrations established by the New. York Convention, which is implemented by Chapter Two of the FAA. Once it has been established that Gulf Petro's claims constitute a collateral attack on a foreign arbitral award, it is the Convention, and not Corey or Decker, that dictates the appropriate disposition, [4] Gulf Petro also characterizes the dismissal in this case as creating an arbitration exception to federal subject matter jurisdiction, and warns of ominous consequences that it expects will follow if the district court's decision is upheld. For example, Gulf Petro states that this socalled exception will render unenforceable statutes that make it a crime to obstruct justice or suborn the corruption of an arbitration panel, preclude application of RICO's civil provisions to irregularities arising from conduct relating to arbitration, and, more generally, bar lawsuits that touch even tangentially upon arbitration. We believe these fears of a wideranging arbitration exception to be unfounded, as our holding in this case is actually quite narrow, and only bars jurisdiction over claims that, when evaluated under the analytical framework of Corey and Decker, are determined to be a collateral attack on a foreign arbitral award. For one, we fail to see how this methodology could be employed to preclude statutes criminalizing activities that might occur in an arbitration. Nothing in Corey and Decker can be taken as affecting the availability of criminal prosecutions under such statutes, as those cases simply stand for the proposition that where a party files a complaint . . . seeking damages for an alleged wrongdoing that compromised an arbitration award and caused the party injury, it is no more, in substance, than an impermissible collateral attack on the award itself.' Decker, 205 F.3d at 910 (quoting Corey, 691 F.2d at 1211-12). Nor do we believe that the result here will preclude lawsuits that touch only tangentially on an arbitration, since a plaintiff need only be able to allege wrongdoing that has caused harm independent of its effect on the arbitration award to avoid the collateral attack label. [5] We also have considered the possibility that the Final Award's effect on Gulf Petro's claims should have been evaluated under the doctrine of res judicata, rather than as a jurisdictional inquiry. Under this line of thinking, Gulf Petro's RICO and state law claims would have survived NNPC's 12(b)(1) motion, but individual elements of those claims could later have been challenged on res judicata grounds through an affirmative defense. In fact, the Convention acknowledges that foreign awards can serve as res judicata in secondary jurisdictions, and accordingly provides for the recognition of an award, in addition to the more commonly invoked enforcement. [6] See Convention, arts. III-V. Recognition typically occurs in a court action between the same parties on the same subject matter as decided in the foreign award. VAN DEN BERG, supra, at 244. In such a case, the defendant requests the recognition of the award by invoking its effect of res judicata . . . Id. It might therefore be suggested that instead of granting NNPC's 12(b)(1) motion and dismissing Gulf Petro's claims for lack of subject matter jurisdiction, the district court should have entertained a motion to recognize the Final Award, in which case Gulf Petro could have asserted the specific defenses to recognition found in Article V. [7] However, the nature of Gulf Petro's claims, which relate first and foremost to the alleged tainting of the arbitration proceedings rather than the underlying contract dispute itself, counsels against such a course of action. There is simply more at work here than res judicata, as Gulf Petro's claim that NNPC suborned the corruption of the panel, though certainly arising out of the arbitration proceedings, is not a matter that was decided in those proceedings. Finally, Gulf Petro argues that any limitations imposed on courts of secondary jurisdiction by the Convention should be overlooked in this case because relief is not available in the primary jurisdiction of Switzerland. We note that Gulf Petro already has sought to have the Final Award set aside in Switzerland, although on different grounds than it advances here, According to Gulf Petro, though, it has no means of vindicating its new claims of bribery and corruption in § witzerland because it has been unable to initiate a criminal proceeding against the arbitrators in that country, such an action apparently being a prerequisite to obtaining reconsideration of the Swiss court's earlier decision. Some commentators suggest that the absence of any possibility of setting aside an award in the primary jurisdiction justifies removing the protection of the Convention from an award. See FOUCHARD, supra, § 1688 (discussing views on this issue). But this view is almost unanimously rejected. Id. § 1689. In any event, Gulf Petro has already had one opportunity to set aside the award in Switzerland, and now seeks a second opportunity. Needless to say, we have come across no suggestion that the absence of multiple opportunities to set aside an award in the primary jurisdiction should render the protections of the Convention inapplicable. In the interest of finality, every primary jurisdiction undoubtedly will foreclose review of an award at some point. It would seriously undermine the functioning of the Convention if the fact that the opportunity for judicial review of an award in the primary jurisdiction has passed could open the door to otherwise impermissible review in a secondary jurisdiction. Moreover, it is not the district court's burden or ours to protect [a party] from all the hardships it might undergo . . . as a result of this foreign arbitration or the international commercial dispute that spawned it. Karaha Bodas, 335 F.3d at 369. There is no basis for an exception here. We have seen that the Convention operates by assigning . . . different roles to national courts to carry out the aims of the treaty. Id. at 368. As discussed above, the role assigned to courts of secondary jurisdiction is a limited one. It is undisputed that the Convention precludes a court of secondary jurisdiction from vacating, setting aside, or modifying a foreign arbitral award. See M & C, 87 F.3d at 849. And given the particular interests at stake in arbitration, it is not surprising that this limitation has been implemented in the form of a jurisdictional bar, which provides an extremely effective method for choking off post-arbitration litigation at the earliest possible moment, thereby encouraging finality and limiting costs. At the outset of this appeal, all parties stood in agreement that Gulf Petro's claim seeking vacatur constituted a direct attack on the Final Award, and was therefore properly dismissed by the district court for lack of subject matter jurisdiction. We have since concluded that Gulf Petro's remaining claims, though ostensibly sounding in independent sources of law, are no more than an indirect attack on that same award. Having come this far, it would be perverse to say that the disposition that Gulf Petro itself concedes to be appropriate for the former claimdismissal for lack of subject matter jurisdictionis somehow inappropriate for the latter ones. Put simply, Gulf Petro's entire complaint is an attempt to set aside the Final Award and replace it with a modified award. The Convention dictates that a United States court, sitting in secondary jurisdiction, lacks jurisdiction to consider such an action. We do not see what result, other than dismissal for lack of subject matter jurisdiction, should follow.