Court Opinion

ID: 181164
Source: CourtListenerOpinion
Date Created: 2010-12-15 18:51:19+00
Date Added: 2024-06-11T17:25:54.294491
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                               No. 09-2064

AO TECHSNABEXPORT, a legal entity organized and existing
under the laws of the Russian Federation,

                Plaintiff - Appellee,

           v.

GLOBE NUCLEAR SERVICES AND SUPPLY GNSS, LIMITED, d/b/a
Global Nuclear Services and Supply, Limited, a Delaware
corporation,

                Defendant – Appellant.

Appeal from the United States District Court for the District of
Maryland, at Greenbelt.      Alexander Williams, Jr., District
Judge. (8:08-cv-01521-AW)

Argued:   September 22, 2010                 Decided:    December 15, 2010

Before TRAXLER,   Chief   Judge,    and   DAVIS    and    KEENAN,   Circuit
Judges.

Affirmed by unpublished opinion.        Judge Keenan wrote the
opinion, in which Chief Judge Traxler and Judge Davis joined.

ARGUED: Andrew K. Fletcher, PEPPER & HAMILTON, LLP, Pittsburgh,
Pennsylvania, for Appellant. Kevin McNulty, GIBBONS PC, Newark,
New Jersey, for Appellee. ON BRIEF: Richard M. Weibley, PEPPER
& HAMILTON, LLP, Pittsburgh, Pennsylvania; Matthew H. Adler,
PEPPER   &  HAMILTON,   LLP,  Philadelphia,  Pennsylvania,  for
Appellant.    Craig M. Palik, MCNAMEE, HOSEA, JERNIGAN, KIM,
GREENAN & LYNCH, PA, Greenbelt, Maryland; David E. De Lorenzi,
GIBBONS PC, Newark, New Jersey, for Appellee.

Unpublished opinions are not binding precedent in this circuit.

                                2
KEENAN, Circuit Judge:

     Globe           Nuclear    Services        and     Supply,        Limited     (Globe)

challenges the district court’s judgment confirming the final

award     of     a    Swedish       arbitration       tribunal        in   favor   of   AO

Techsnabexport (Tenex).               Globe’s appeal presents three issues:

1)   whether          the   arbitration        tribunal        improperly     considered

“witness statements” of individuals who were not available for

cross-examination;             2)    whether      the        tribunal      exceeded     its

permissible scope of review by considering matters related to

Russian    criminal         law;     and   3)    whether        the     tribunal    lacked

authority to enter the final award after previously deciding

certain questions in the partial award.                        Upon consideration of

these issues, we affirm the district court’s judgment confirming

the final award.

                                            I.

     Tenex is a joint stock company organized under the laws of

the Russian Federation, and was appointed by an agency of the

Russian Federation to direct the management of Russian nuclear

materials.           Globe is a corporation established under Delaware

law that maintains its headquarters in Maryland.                             Globe buys,

sells,     and       trades     various    forms        of    uranium      used    in   the

production of nuclear fuel.

                                            3
     In January 2000, Tenex and Globe entered into a contract

for the sale of uranium hexafluoride (uranium), in which Globe

agreed to purchase uranium from Tenex from 2001 through 2013

(the contract).          The contract contained an arbitration clause,

which   provided        that   “any     []    dispute,      controversy   or     claim

arising out of or relating to [the contract] or the breach,

termination      or      invalidity         thereof”       shall   be   settled     by

arbitration, and that the contract shall be governed by the laws

of Sweden.

     In November 2003, Tenex informed Globe that Tenex would no

longer sell uranium to Globe, effective January 2004, because

further sales were “inimical to the interests of the Russian

Federation.”          After    Tenex’s       announcement,     Globe    submitted   a

request   for    arbitration.           A    panel   of    three   arbitrators    (the

tribunal) was appointed to conduct the proceedings in Sweden.

     In its amended claim for relief, Globe asserted that Tenex

breached the contract, and that Globe was entitled to more than

$944 million in damages plus costs.                       The parties held a pre-

hearing conference in Arlanda, Sweden, and agreed upon a set of

procedural      rules    to    govern       the   arbitration      proceedings    (the

Arlanda Rules).         The Arlanda Rules provided, in part, that each

witness must submit a written statement, and must testify before

the tribunal and be available for cross-examination.

                                             4
       Before the arbitration hearings began, Tenex informed the

tribunal that indictments had been filed in the United States

charging a former Russian Federation government official and a

Globe executive with using money stolen from the United States

government       to     purchase             shares    of      Globe.       The        General

Prosecutor’s      Office       of    the        Russian      Federation     (the       Russian

Prosecutor General) began a related criminal investigation (the

Russian criminal investigation) of several individuals allegedly

involved in a conspiracy to gain control of Globe and to defraud

the Russian Federation.                  Tenex informed the tribunal that the

Russian criminal investigation might affect Tenex’s defense in

the arbitration proceedings and requested that the record remain

open to receive new evidence that may be revealed by the Russian

criminal investigation.              Globe opposed this request for several

reasons, including that the Russian criminal investigation was

irrelevant to the issues before the tribunal.

       In   October        2005,     the       tribunal        conducted    a     procedural

hearing     to   determine          to       what     extent     the    Russian    criminal

investigation         should    affect         the    arbitration       proceedings.        At

that    hearing,        Tenex       asserted          that      the     Russian     criminal

investigation revealed that before Tenex and Globe entered into

the    contract,       a    group        of     individuals,          including    a     Globe

executive,       engaged       in        a     fraudulent       scheme     to     obtain     a

controlling interest in Globe in the corporate name of TKST,

                                                 5
Inc. (TKST).        Tenex asserted that these individuals (the alleged

TKST conspirators) misrepresented to Tenex that TKST was acting

in the interests of Tenex and the Russian Federation, when TKST

actually served to benefit the alleged TKST conspirators.                   Tenex

asserted that these facts rendered the contract inequitable and

therefore invalid under Section 33 of the Swedish Contracts Act.

As applicable to this case, Section 33 of the Swedish Contracts

Act   provides      that   an   otherwise    valid    contract      will   not    be

enforced when one party has knowledge that the circumstances

leading to the contract’s formation are inequitable.

        In   November      2005,   the   tribunal     issued    a   schedule     of

hearings.      That schedule reflected the tribunal’s decision to

consider the breach of contract issue in the initial phase of

hearings, and to determine damages, if necessary, in a second

phase of hearings.           The tribunal stated that it would “later

decide whether and, if so, to what extent new evidence, which

may come up in the ongoing criminal investigations” would be

allowed.      The tribunal concluded that if it decided to allow

such new evidence, then the tribunal would conduct a third phase

of hearings to consider the validity of the contract.

      In     August    2006,    after    conducting    the     first   phase     of

hearings, the tribunal issued a partial award in favor of Globe,

based   on    the     tribunal’s   conclusion   that     Tenex      breached     the

contract.      In that award, the tribunal rejected four independent

                                         6
grounds of defense asserted by Tenex.             The tribunal proceeded to

conduct the second phase of hearings to determine damages, but

deferred its ruling on that issue.

     In December 2006, Tenex submitted 460 new exhibits and a

brief   addressing    the   validity       of   the   contract.      Those   460

exhibits included transcripts documenting interviews between the

Russian Prosecutor General and several individuals regarding, in

part, TKST’s purchase of Globe shares.                 Globe objected to the

tribunal’s consideration of those 460 exhibits on the basis that

the tribunal did not have authority to review matters involving

Russian criminal law.        Globe reasserted this objection several

times throughout the arbitration proceedings but raised no other

objections regarding the transcripts from the Russian Prosecutor

General.

     The tribunal accepted the new evidence and proceeded to

conduct the third phase of hearings to consider the validity of

the contract.      At the close of those hearings, Globe renewed its

objection to the tribunal’s consideration of criminal matters.

     In its final award, the tribunal ruled in favor of Tenex,

holding that the contract was invalid under § 33 of the Swedish

Contracts   Act.      The   tribunal   awarded        Tenex   $5   million   plus

interest to compensate Tenex for its attorneys’ fees and costs,

and dismissed Globe’s claims.

                                       7
       The   tribunal            concluded       in       the    final       award    that       Tenex

assisted TKST in acquiring a majority share of Globe because

Tenex was led to believe that the Russian Federation owned and

controlled TKST.             The tribunal determined, however, that TKST

actually       was    acting        in    the        interests         of    the     alleged      TKST

conspirators.          The tribunal concluded that Globe was aware of

this   circumstance          when        the    parties         entered       the    contract      and

that, therefore, the contract could not be enforced equitably.

       Also in its final award, the tribunal addressed Globe’s

objection       to     the       tribunal’s          consideration            of    the     evidence

obtained from the Russian criminal investigation.                                    The tribunal

stated that it permissibly could “take into account such facts

that also may constitute a criminal offence or, as an incidental

question, decide whether a certain act or omission constitutes

an offence, and consider the civil aspects thereof.”

       Tenex    filed        a    complaint          in    the    district          court    seeking

confirmation         of     the     final       award.           The     district         court   had

jurisdiction          to     consider          the       complaint          under    the    Federal

Arbitration          Act,    which        incorporates           the        Convention      on     the

Recognition and Enforcement of Foreign Arbitral Awards, June 10,

1958, 21 U.S.T. 2517 (the Convention).                                 See 9 U.S.C. §§ 203,

207.     Globe filed pleadings opposing Tenex’s requested relief

and also filed a motion to confirm the tribunal’s partial award.

                                                     8
     After conducting a hearing, the district court entered an

order confirming the final award in favor of Tenex and denying

Globe’s motion to confirm the partial award.                      On appeal, Globe

asserts    that    because       the   tribunal    committed       several       errors

relating    to    its   final    award,    the    district     court     should    have

confirmed the partial award instead.

                                          II.

     The scope of judicial review of an arbitration award is

“among the narrowest known at law.”                  Three S. Del., Inc. v.

Dataquick    Info.       Sys.,    Inc.,    492    F.3d     520,    527    (4th     Cir.

2007)(quoting Apex Plumbing Supply, Inc. v. U.S. Supply Co.,

Inc., 142 F.3d 188, 193 (4th Cir. 1998)).                      We have explained

that expansive judicial scrutiny of such awards would undermine

important benefits of arbitration, such as avoiding the delay

and expense associated with litigation.                  Id.   Therefore, a court

considering a complaint seeking confirmation of an arbitration

award may determine only whether the arbitrators acted within

the scope of their authority, and may not consider whether the

arbitrators acted correctly or reasonably.                     Id. (citing Remmey

v. PaineWebber, Inc., 32 F.3d 143, 146 (4th Cir. 1994)).

     We review a district court’s confirmation of an arbitration

award de novo.          Raymond James Fin. Servs., Inc. v. Bishop, 596

                                           9
F.3d 183, 190 (4th Cir. 2010).             The district court’s findings of

fact are reviewed for clear error.              Id.

      In   order    for    a    reviewing       court    to    vacate   a       foreign

arbitration award, the moving party must establish one of the

grounds    for   refusal      specified    in    the    Convention.         9   U.S.C.

§ 207; see Three S. Del., 492 F.3d at 527.                      Article V of the

Convention sets forth several bases for refusal, including the

following grounds relevant to this appeal:

      (1)(b) The party against whom the award is invoked was
      not given proper notice of the appointment of the
      arbitrator . . . or was otherwise unable to present
      his case; or

      (1)(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. . . ; or

      (1)(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

      (2)(b) The recognition         or enforcement of the award
      would be contrary to           the public policy of that
      country.

21 U.S.T. at 2520.

                                          A.

      Globe argues that the district court erred in confirming

the   final   award,      because   the    tribunal      improperly     considered

transcripts      from   the    Russian     Prosecutor         General   documenting

interviews conducted with various individuals.                     Globe contends

                                          10
that    these    transcripts         constituted      “witness       statements”      under

the Arlanda Rules and, thus, that Tenex was required to make the

individuals referenced in the transcripts available for cross-

examination.            Globe        asserts       that      by     considering        these

transcripts,      the     tribunal       violated         the     governing     procedural

rules established by the parties, a ground for refusal of an

arbitration      award    in     Article         V(1)(d)   of     the   Convention,     and

denied Globe the opportunity to “present its case” and cross-

examine    witnesses,      a     separate         ground   for     refusal      in   Article

V(1)(b) of the Convention.

       We conclude that Globe waived this argument by failing to

raise it during the arbitration proceedings.                        The district court

found     that    Globe        did    not    object        during       the   arbitration

proceedings to the tribunal’s consideration of the transcripts

on the ground that they constituted “witness statements” under

the Arlanda Rules.             The record before us supports the district

court’s    finding       and    shows       that     Globe      posed    only    “blanket”

objections to the tribunal’s consideration of the 460 exhibits

at   issue.       Globe    objected         to    those    exhibits      numerous     times

during the proceedings on the grounds that the Russian criminal

investigation was irrelevant to the arbitration proceedings, and

that the tribunal lacked authority to consider criminal matters.

       Globe did not raise any objection during the arbitration

proceedings about its inability to cross-examine the individuals

                                             11
who made the alleged “witness statements,” or argue that the

tribunal’s consideration of the transcripts would violate the

Arlanda Rules.         Therefore, we will not consider the merits of

Globe’s argument on this issue, because it was raised for the

first time in the district court.                     See Kreiter v. Lufthansa

German Airlines, Inc., 558 F.2d 966, 968 (9th Cir. 1977)(defects

in proceedings prior to or during arbitration may be waived by

party’s acquiescence); Order of Ry. Conductors v. Clinchfield

R.R. Co., 407 F.2d 985, 988 (6th Cir. 1969)(same).

                                             B.

      Globe     next    argues        that    the    district      court    erred     in

confirming the final award because, in that award, the tribunal

improperly engaged in an assessment of Russian criminal law and

“considered the rights and interests” of individuals other than

the parties to the contract.                 According to Globe, the tribunal

reached conclusions in its final award regarding the question

whether   the    alleged       TKST     conspirators        held    stock    in     Globe

through a “secret joint venture” and deceived Russian officials

about the existence of this venture, and whether the contract

was   executed    to    “funnel        profits”      from   Tenex     to    Globe    and

ultimately to the alleged TKST conspirators.                       Globe argues that

in reaching these conclusions, the tribunal exceeded the scope

of its review permitted under the arbitration clause, a ground

for   refusal    set   forth     in    Article      V(1)(c)   of    the    Convention.

                                             12
Globe maintains that this scope of review was limited to an

application of Swedish law to the rights of the parties to the

contract.

       Globe also argues that because the final award contained

“criminal findings,” the tribunal “mimicked” a Russian criminal

court in violation of the public policy interest in protecting

the integrity of international arbitration, a ground for refusal

of an arbitration award set forth in Article V(2)(b) of the

Convention.       We disagree with Globe’s arguments.

       The tribunal’s authority under the plain language of the

arbitration       clause    broadly     provides        that    “any   []     dispute,

controversy       or   claim      arising    out   of     or    relating     to   [the

contract]    or    the     breach,    termination       or     invalidity    thereof”

shall be settled by arbitration (emphasis added).                           Therefore,

the tribunal was permitted to consider the alleged criminal acts

of various individuals to the extent that those acts related to

the issue of the contract’s validity under § 33 of the Swedish

Contracts Act, a defense asserted by Tenex.

       The tribunal determined in its final award, based in part

on evidence obtained from the Russian criminal investigation,

that   the   alleged       TKST    conspirators    knowingly        concealed     from

Tenex the true nature of TKST’s ownership and interests.                          This

conclusion served as the basis for the tribunal’s ruling that

the contract was inequitable and, therefore, was invalid.

                                            13
     The tribunal’s conclusion, however, did not constitute an

“assessment” of criminal law, nor did the tribunal attempt to

hold any individual or entity criminally liable in any respect.

Additionally, the final award does not contain citation to any

principles     of    Russian    criminal       law   nor   does   it   include       any

application of such legal principles.                  Therefore, we hold that

the tribunal, in considering evidence from the Russian criminal

investigation, did not exceed the scope of its authority in the

arbitration clause, within the meaning of Article V(1)(c) of the

Convention, and did not violate the public policy interest in

protecting     the    integrity    of    international      arbitration,       within

the meaning of Article V(2)(b) of the Convention.

                                          C.

     Finally,        Globe    argues    that   the    district    court      erred    in

confirming the final award because, in that award, the tribunal

reconsidered        matters     already     resolved       conclusively       in     the

partial award.         Globe contends that during the first phase of

the hearings, Tenex presented evidence and argument addressing

whether the alleged TKST conspirators engaged in unethical and

fraudulent conduct affecting the negotiation of the contract.

Globe   further       contends     that     the      tribunal     dismissed        these

allegations     in     the    partial    award,      stating    that   the    grounds

“which Tenex has invoked as its defense. . . do not relieve

Tenex   from    its     contractual       liability.”          Accordingly,        Globe

                                          14
asserts that the tribunal exceeded the scope of its authority,

within     the    meaning    of     Article      V(1)(c),      when    the   tribunal

reconsidered Tenex’s previously-asserted defense in determining

the final award.          Globe thus maintains that the partial award

completely disposed of all claims submitted to the tribunal by

the parties, and requests that we direct the district court to

confirm the partial award.               We disagree with Globe’s arguments,

and decline to order confirmation of the partial award.

        Arbitrators       complete       their    function      and     lose    their

authority to act after making a final determination on a matter.

Trade & Transport, Inc. v. Natural Petroleum Charterers, Inc.,

931 F.2d 191, 195 (2d Cir. 1991); Colonial Penn Ins. Co. v.

Omaha    Indem.    Co.,    943    F.2d    327,   331   (3d     Cir.    1991).     This

principle, known as the doctrine of functus officio, prevents an

arbitrator from reexamining the merits of a final award.                        Trade

& Transport, 931 F.3d at 195; Colonial Penn Ins., 943 F.2d at

331-32.

     An award is final in nature when the arbitrators intend to

include in the award their complete determination of all claims

submitted for arbitration.               Hart Surgical, Inc. v. UltraCision,

Inc., 244 F.3d 231, 233 (1st Cir. 2001); Anderson v. Norfolk &

Western Ry. Co., 773 F.2d 880, 883 (7th Cir. 1985); Michaels v.

Mariforum Shipping, S.A., 624 F.2d 411, 413-14 (2d Cir. 1980).

Nevertheless,      an     interim    arbitration       award    that    finally   and

                                           15
definitively disposes of a separate, independent claim may be

confirmed in the absence of a final award.                     Island Creek Coal

Sales Co. v. City of Gainesville, 729 F.2d 1046, 1049 (6th Cir.

1984).

     In    the    present    case,     the   tribunal      issued     a    schedule       of

hearings, which provided that the issues of breach of contract

and potential damages would be addressed during the first two

phases of hearings.          The schedule also established that if the

tribunal     later     decided     to    allow    additional          evidence,       the

tribunal   would      consider     the   issue   of    contract       validity       in    a

third phase of hearings.

     While a court ordinarily might consider the validity of a

contract     before    considering       whether       a    party     breached       that

contract, the district court correctly observed that the unusual

procedure in this case was warranted based on the potentially-

relevant     Russian        criminal     investigation.               Moreover,       the

tribunal’s       schedule    of   hearings     explained       that       the   tribunal

explicitly reserved consideration of the issue of the contract’s

validity for the third phase of hearings.

     The    record     demonstrates      that    the       tribunal       followed    its

announced schedule, and did not address in the partial award

Tenex’s defense that the contract was invalid under § 33 of the

Swedish Contracts Act.            The tribunal considered and rejected in

the partial award other independent grounds of defense raised by

                                         16
Tenex as reasons for its termination of the contract.                        Because

the   partial      and   the   final     awards   resolved      different     legal

issues, the tribunal was not prohibited in the third phase of

hearings    from    considering     the    same   facts    it     previously    had

considered in determining its partial award.

      We conclude that the partial award did not definitively

dispose    of      any    severable      claim    or     constitute      a    final

determination of the issues presented by the parties.                    Thus, the

partial award was rendered moot by the tribunal’s conclusion in

the final award that the contract was not enforceable.                   See Hart

Surgical, 244 F.3d at 233; Anderson, 773 F.2d at 883;                    Michaels,

624 F.2d at 413-14.         Accordingly, we hold that the tribunal did

not   violate   the      doctrine   of    functus      officio,    and   that   the

district court did not err in declining to affirm the partial

award.     See Trade & Transport, 931 F.3d at 195; Colonial Penn

Ins., 943 F.2d at 331-32.

      For these reasons, we affirm the district court’s judgment

confirming the final arbitration award.

                                                                          AFFIRMED

                                         17