198 F.3d 88 (2nd Cir. 1999), 99-7101, Smith/Enron v Smith Cogeneration Int'l

Docket Nº:Docket No. 99-7101
Citation:198 F.3d 88
Party Name:SMITH/ENRON COGENERATION LIMITED PARTNERSHIP, INC., ENRON INTERNATIONAL C.V., ENRON DEVELOPMENT CORP., ENRON RESERVE I B.V., ATLANTIC COMMERCIAL FINANCIAL B.V., and TRAVAMARK TWO B.V., Petitioners-Appellees, v. SMITH COGENERATION INTERNATIONAL, INC., Respondent-Appellant.
Case Date:December 08, 1999
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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198 F.3d 88 (2nd Cir. 1999)

SMITH/ENRON COGENERATION LIMITED PARTNERSHIP, INC., ENRON INTERNATIONAL C.V., ENRON DEVELOPMENT CORP., ENRON RESERVE I B.V., ATLANTIC COMMERCIAL FINANCIAL

B.V., and TRAVAMARK TWO B.V., Petitioners-Appellees,

v.

SMITH COGENERATION INTERNATIONAL, INC., Respondent-Appellant.

Docket No. 99-7101

United States Court of Appeals, Second Circuit

December 8, 1999

Appeal from order of United States District Court for the Southern District of New York, Richard C. Casey, J., compelling respondent-appellant Smith Cogeneration International, Inc. (SCI) to arbitrate claims asserted by SCI in a lawsuit in the Dominican Republic against petitioners-appellees. We find that the district court properly asserted jurisdiction under Chapter Two of the FAA, implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. We further find that there was an enforceable arbitration agreement, and that included within its scope are the claims asserted by SCI. The order of the district court is affirmed.

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RICHARD N. CHASSIN, New York, NY (Becker, Glynn, Melamed & Muffly LLP, Joseph D. Becker, Zeb Landsman, of Counsel), for Respondent-Appellant.

GREGORY A. MARKEL, New York, NY (Brobeck Phleger & Harrison LLP, Ronit Setton, of Counsel), for Petitioners-Appellees.

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Before: FEINBERG, VAN GRAAFEILAND and SACK, Circuit Judges.

FEINBERG, Circuit Judge:

Respondent Smith Cogeneration International, Inc. (SCI) appeals from an order of the United States District Court for the Southern District of New York, Richard C. Casey, J., compelling arbitration of claims asserted by SCI in a lawsuit in the Dominican Republic (the Dominican Lawsuit) against petitioners-appellees Smith/Enron Cogeneration Limited Partnership, Inc. (SECLP) and Enron International C.V. (Enron Int'l) and a number of its affiliates (collectively referred to as Enron). SCI's principal arguments on appeal are (1) under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Convention) the district court did not have jurisdiction over this action; (2) the contracts between the parties containing the arbitration clause are no longer enforceable by Enron; and, (3) SCI's claims in the Dominican Lawsuit are not covered by the arbitration clause. For the reasons stated below, we affirm the order of the district court.

I. Background

This case arises out of a number of agreements between SCI and Enron regarding an electrical power plant in the Dominican Republic. In July 1993, SCI signed a Power Purchase Agreement with a state-owned utility, Compa±ia Dominicana de Electricidad (CDE), to construct, finance and manage the power plant (Power Purchase Agreement). While negotiating this agreement, SCI encountered strong competition from Enron, which was making its own offers to the Dominican government. After some negotiation, SCI and Enron Int'l agreed to create a joint venture in the construction and operation of the plant as reflected in the Project Agreement they both signed on November 12, 1993 (Project Agreement).

On November 24, 1993, Smith Cogeneration Dominicana (SCD), SCI's affiliate, 1. entered into a limited partnership agreement with Travamark Two B.V. (Travamark), an Enron affiliate (1993 Agreement). The 1993 Agreement created SECLP, a limited partnership organized under the laws of the Turks and Caicos Islands. Pursuant to the 1993 Agreement SCI was to assign its interest in the Power Purchase Agreement to SECLP, which would then take over the construction and operation of the power plant.

Thereafter, a series of assignments by both signatories to the 1993 Agreement (SCD and Travamark) took place. SCD assigned part of its interest in SECLP to SCI. Similarly, Travamark assigned its interest in SECLP to two Enron affiliates, Atlantic Commercial Finance B.V. (ACF) and Enron Reserve I B.V. (ER). The 1993 Agreement was amended in December 1994 to reflect these changes (1994 Agreement).

The 1994 Agreement, like the 1993 Agreement and the Project Agreement that preceded it, contained a broad arbitration clause providing for the arbitration of "any dispute . . . arising under or relating to any obligation or claimed obligation under the provisions of this Agreement." All three agreements also provided that the arbitration take place in New York and be governed by the Federal Arbitration Act (FAA), 9 U.S.C. §1 et seq., and Texas law. The 1993 and the 1994 Agreements were identical in all other relevant respects.

Less than a year after SCI, SCD, ACF, and ER entered into the 1994 Agreement, a second series of assignments took place. In July 1995, ER assigned its general partnership interest to Enron Dominican Republic Operations (EDRO), and ACF assigned its limited partnership interest to Enron Dominican Republic (EDR). Neither party disputes that these assignments were permitted under the 1994 Agreement

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and were made with SCI's knowledge and consent. Enron additionally claims that, as with the previous assignments, these assignees are Enron affiliates with identical economic interests and under common control. In contrast to all the previously named Enron affiliates (Enron Int'l, Travamark, ACF, and ER), EDR and EDRO -- the current Enron partners in SECLP -- were not sued by SCI in the Dominican Lawsuit and are not petitioners in this litigation.

The Enron-SCI relationship began to unravel in 1996 when it became clear that SCI was unable to meet its financial obligations to SECLP. As a result, in April 1996 the 1994 Agreement was amended to include the Smith Dominicana Holding Limited Partnership (Holding Partnership). The Holding Partnership, a creation of SCD and another Enron affiliate, Finven, was a mechanism for infusing money into SECLP: SCD would in effect sell 35% of its interest in SECLP to Finven, and either repurchase it by November 1997 or receive $50,000 in consideration from Finven. SCD proved unable to repurchase its interest, and a dispute arose between it and Finven. As a result, the two entities proceeded to arbitration in June 1998. 2. That arbitration took place under the contract creating the Holding Partnership and its result is not the subject of this appeal.

Shortly after the debacle for SCI in the arbitration with Finven and with SCI's position in SECLP apparently eroding, SCI filed the Dominican Lawsuit in July 1998. In that suit, SCI named all of the petitioners in the instant case as defendants, referring to them throughout the complaint as "Enron," the "Enron Group," "the Enron companies," and describing them as affiliates. In its complaint in that action, SCI alleged that it was coerced into the SECLP partnership by Enron, that all of SCI's Agreements with Enron were fraudulently induced, and that Enron tortiously interfered with SCI's negotiations with CDE. SCI demanded rescission of the Project Agreement, the 1993 Agreement and the 1994 Agreement and approximately $159 million in damages.

Whereupon we arrive at the instant action. In August 1998, SECLP and Enron filed a petition in the Southern District to compel arbitration of the dispute with SCI and to enjoin SCI from prosecuting the Dominican Lawsuit. In the district court, Enron argued that under the broad arbitration clause in the 1993 and 1994 Agreements, SCI is bound to arbitrate its dispute with Enron. After oral argument in November 1998, Judge Casey ruled from the bench, granting Enron's motion to compel arbitration and enjoining SCI from prosecuting the Dominican Lawsuit. This appeal followed.

II. Discussion

On appeal, SCI argues that there is no federal subject matter jurisdiction over this action because the 1994 Agreement is not "centered" in a state that is a signatory to the Convention. Next, SCI claims that because none of the petitioners are currently signatories to the 1994 Agreement as a result of the various transactions outlined above, they no longer have the right to compel arbitration of disputes under that Agreement. Finally, SCI argues that its claims in the Dominican Lawsuit are based upon Enron's actions that predate the 1994 Agreement and thus are beyond the scope of the arbitration clause. We treat these claims in separate sections below.

A. Jurisdiction under the Convention

SCI argues that the district court did not have subject matter jurisdiction over this dispute. SCI and Enron agree that

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the only basis for federal jurisdiction, if it exists, is Chapter Two of the FAA, 9 U.S.C. §§ 201-208. 3. Section 201 provides for the enforcement of the Convention. 4. Section 203 provides that "[a]n action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States." In considering whether the Convention applies to this arbitration, we are mindful that "[t]he goal of the Convention is to promote the enforcement of arbitral agreements in contracts involving international commerce so as to facilitate international business transactions," David L. Threlkeld & Co. v. Metallgesellschaft Ltd., 923 F.2d 245, 250 (2d Cir.), cert. dismissed, 501 U.S. 1267 (1991), and to "unify the standards by which agreements to arbitrate are observed." Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (1974). The adoption of the Convention by the United States promotes the strong federal policy favoring arbitration of disputes, particularly in the international context. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 638-40 (1985).

A district court may compel arbitration under Chapter Two of the FAA pursuant to 9 U.S.C. § 206, which provides:

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