VRG Linhas Aereas S.A. v. Matlinpatterson Global Opportunities Partners II L.P.

• Decision Date: 03 June 2013
• Docket Number: Docket No. 12–593–cv.
• Citation: 717 F.3d 322
• Parties: VRG LINHAS AEREAS S.A., Petitioner–Appellant, v. MATLINPATTERSON GLOBAL OPPORTUNITIES PARTNERS II L.P., MatlinPatterson Global Opportunities Partners (Cayman) II L.P., Respondents–Appellees.
• Court: U.S. Court of Appeals — Second Circuit

717 F.3d 322

VRG LINHAS AEREAS S.A., Petitioner–Appellant,

v.MATLINPATTERSON GLOBAL OPPORTUNITIES PARTNERS II L.P., MatlinPatterson Global Opportunities Partners (Cayman) II L.P., Respondents–Appellees.

Docket No. 12–593–cv.

United States Court of Appeals,Second Circuit.

Argued: Dec. 19, 2012.

Decided: June 3, 2013.

Donald Francis Donovan (Carl Micarelli, Debevoise & Plimpton LLP; Richard I. Werder, Jr., William B. Adams, and Elizabeth M. Devaney, Quinn Emanuel Urquhart & Sullivan, LLP, on the brief), Debevoise & Plimpton LLP, New York, NY, for Petitioner–Appellant.

Robert H. Smit (Tyler B. Robinson, Juan A. Arteaga, and Michelle Hertz, on the brief), Simpson Thacher & Bartlett LLP, New York, NY, for Respondents–Appellees.

Before: CALABRESI, LYNCH, and CHIN, Circuit Judges.

CALABRESI, Circuit Judge:

After receiving an arbitral award against Respondents–Appellees MatlinPatterson Global Opportunities Partners II L.P. and MatlinPatterson Global Opportunities Partners (Cayman) II L.P. (collectively “MatlinPatterson”), Petitioner–Appellant VRG Linhas Aereas S.A. (“VRG”) filed a petition in the Southern District of New York seeking confirmation of the award in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). 9 U.S.C. §§ 201–08. MatlinPatterson argued in response, as it had in arbitration and court proceedings in Brazil, that the Arbitral Tribunal administered by the International Court of Arbitration of the International Chamber of Commerce (“ICC”) lacked jurisdiction over its dispute with VRG. The district court (Cedarbaum, J.) issued an oral ruling agreeing with MatlinPatterson and thereafterdenied VRG's petition by handwritten endorsement.

On appeal, VRG argues that the district court usurped the Arbitral Tribunal's role when it decided that the scope of the parties' arbitration agreement—assuming there was one—did not extend to the dispute at hand. The question of who is to decide whether a dispute is arbitrable is one that must necessarily precede the question of whether a dispute is arbitrable. We therefore vacate the district court's judgment and remand so that it may decide, in the first instance and on the particular facts of this case, who—the court or the Arbitral Tribunal—has the power to determine the scope of the alleged arbitration agreement between VRG and MatlinPatterson. As we describe more fully below, this power—to determine the scope of any agreement to arbitrate—is to remain with the district court unless the parties agreed to an arbitration clause that clearly and unmistakably assigns such questions to arbitration.

BACKGROUND

MatlinPatterson is a private equity fund based in New York; VRG, based in São Paulo, Brazil, is a subsidiary of Gol Linhas Aereas Inteligentes S.A. (“Gol”), a Brazilian airline. Gol—through a subsidiary, GTI—acquired VRG in 2007 from two of MatlinPatterson's indirect subsidiaries, Varig Logistica S.A. and Volo do Brasil S.A. The transaction was accomplished through a Share Purchase and Sale Agreement (“the Agreement”), written in Portuguese, and signed on March 28, 2007 by all of the entities just mentioned but one: MatlinPatterson.

Six Addenda to the Agreement were also executed, including one (Addendum 5) that MatlinPatterson did sign, and that gives rise to the dispute before us. In Addendum 5, a one-page document also signed by GTI and Gol, MatlinPatterson agreed not to compete with VRG or invest in any of its competitors in the passenger airline market for a period of three years. Addendum 5 did not mention arbitration. The parties sharply dispute, however, whether the signatories to Addendum 5 agreed to incorporate the arbitration provisions detailed in § 14 of the main Agreement.¹ Their dispute turns in part on divergent translations of a phrase that appears at the end of Addendum 5, describing that document as “ aditando os termos do Contrato ”—that is, “amending” (VRG's translation) or “supplementing” (MatlinPatterson's) the terms of the main Agreement.

Soon after the sale of VRG, a dispute arose over an adjustment to the purchase price. In December 2007, VRG referred the dispute to arbitration, naming MatlinPatterson as a party. Over the latter's objections, the three-member Arbitral Tribunal appointed under ICC rules unanimously determined, after briefing and a two-day hearing, that MatlinPatterson had agreed to arbitration and—though the panel divided on this question—that its agreement to arbitrate encompassed the parties' purchase price dispute. Following a subsequent three-day hearing on the merits of that dispute, the Tribunal, in September 2010, unanimously issued its award holding MatlinPatterson liable for damages resulting from fraudulent misrepresentations it made during the sale of VRG. MatlinPatterson has challenged the arbitral award in the Brazilian courts, so far unsuccessfully.

The present case arose in January 2011, when VRG filed a petition in the Southern District of New York for confirmation of its foreign arbitral award against MatlinPatterson, in accordance with the New York Convention, 9 U.S.C. § 207. As it had in Brazil, MatlinPatterson argued in the district court that the Arbitral Tribunal lacked jurisdiction over its dispute with VRG. The district court agreed, ruling from the bench that even if MatlinPatterson had agreed to arbitrate disputes over its noncompete agreement with VRG, it had not agreed to arbitrate what the district court described as “an entirely different issue [arising] under an agreement that it did not sign.” VRG now appeals the district court's denial of its petition.

DISCUSSION

We review a district court's legal interpretations of the New York Convention as well as its contract interpretation de novo; findings of fact are reviewed for clear error. See Fishoff v. Coty Inc., 634 F.3d 647, 652 (2d Cir.2011); Sarhank Grp. v. Oracle Corp., 404 F.3d 657, 659 (2d Cir.2005); Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 89 (2d Cir.2005).

Under the New York Convention, as implemented and codified at 9 U.S.C. § 207, a party may petition a United States district court to confirm a foreign arbitral award that the party received within the previous three years. The court is to confirm the award unless it finds one of the seven grounds for refusal offered in Article V of the Convention. “Given the strong public policy in favor of international arbitration,” the party seeking to avoid summary confirmance of an arbitral award has the heavy burden of proving that one of the seven defenses applies. Encyclopaedia Universalis, 403 F.3d at 90.

Among its provided defenses, the Convention allows courts to refuse to recognize a foreign arbitral award if “[t]he subject matter of the difference is not capable of settlement by arbitration under the law of” the county in which enforcement is sought. New York Convention, art. V(2)(a), June 10, 1958, 21 U.S.T. 2517. Whether a given dispute is arbitrable—and the resulting award enforceable—is therefore a question to be decided under United States arbitration law. So too is the logically prior question of who shall decide a dispute's arbitrability. See Sarhank Grp., 404 F.3d at 661.

The Supreme Court helpfully distinguished these inquiries from each other, and from yet a third question, in First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). As the First Options Court explained, the three questions involve: 1) the merits of the dispute; 2) whether the dispute is to be arbitrated—the so called “question of arbitrability”; and 3) whether a court or an arbitrator is to decide the question of arbitrability. In regard to Question Three, First Options holds that questions of arbitrability are to be sent to arbitration if and only if the parties clearly and unmistakably expressed their intention to do so.²Id. at 945, 115 S.Ct. 1920;see also Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002).

Of course, a court asked to confirm an arbitral award must take the three First Options questions in reverse order, since Question Three asks who will answer Question Two (the question of arbitrability), and Question Two in turn asks who will answer Question One (the decision on the merits). See Alliance Bernstein Inv. Research & Mgmt., Inc. v....