Ministry of Defense and Support v. Cubic Defense, Civ. No. 98-1165-B.
| Decision Date | 07 December 1998 |
| Docket Number | Civ. No. 98-1165-B. |
| Court | U.S. District Court — Southern District of California |
| Parties | The MINISTRY OF DEFENSE AND SUPPORT FOR THE ARMED FORCES OF THE ISLAMIC REPUBLIC OF IRAN, as Successor in Interest to the Ministry of War of the Government of Iran, Petitioner, v. CUBIC DEFENSE SYSTEMS, INC., as Successor in Interest to Cubic International Sales Corporation, Respondent. |
Mina Almassi, Cupertino, California, Anthony J. Van Patten, Los Angeles, California, for petitioner.
C. Stephen Heard, Jr., New York City, Paul C. Workman, Los Angeles, California, for respondent.
ORDER GRANTING PETITION TO CONFIRM FOREIGN ARBITRAL AWARD AND DENYING CROSS-MOTION TO VACATE THE MAY 5, 1997 ICC ARBITRATION AWARD
Petitioner, the Ministry of Defense and Support of the Armed Forces of the Islamic Republic of Iran ("Iran"), filed a petition on June 25, 1998 for an Order Confirming a Foreign Arbitral Award against Respondent, Cubic Defense Systems, Inc. ("Cubic"). Cubic filed a cross-motion on October 9, 1998 to Vacate the May 5, 1997 Court of Arbitration of the International Chamber of Commerce ("ICC") Award ("Award"). Cubic contends that the ICC Award exceeds the scope of the terms of the submission to arbitration and ignores the terms of the Parties' Contracts. Cubic also claims that it was not given a meaningful opportunity to present its case. The issue before this Court is whether Cubic's claims preclude this Court from confirming the ICC Award.
A brief review of the events leading up to this dispute is in order. On October 23, 1977, the Parties entered into two written contracts for the sale ("Sales Contract") and service ("Service Contract") of an Air Combat Maneuvering Range for use by the Iranian Air Force. The Contracts provided for progress payments upon completion of specified portions of work, pursuant to which Iran paid Cubic $12,608,519 under the Sales Contract and $302,857 under the Service Contract as of October 4, 1978.
In late 1978 and early 1979, political unrest and revolution developed in Iran, resulting in the Shah's departure from Iran and the return from exile of Ayatollah Ruhollah Khomeini.1 Iran alleges that Cubic breached both Contracts by removing its service specialists from Iran and by failing to deliver the military system and equipment. Cubic alleges that in February and March of 1979, Cubic sent Iran notices of completion of Milestone 3 of the Sales Contract and demanded payment of $5,403,651. According to Cubic, Iran did not respond to these notices, accept delivery, or make payment. Furthermore, Iran claims that after the Iranian Revolution in 1979, Cubic sold the goods to a third party, retained the sale proceeds, and failed to notify Iran of the sale. Cubic, however, alleges that it notified Iran of the possibility of resale on August 3, 1979.
On January 19, 1982, Iran filed a claim against Cubic with the Iran-United States Claims Tribunal at the Hague. On April 28, 1987, the Iran-U.S. Claims Tribunal issued an Order stating that it lacked jurisdiction to hear the matter.
Pursuant to the Sales and Service Contracts, Iran filed a Request for Arbitration before the ICC on September 24, 1991. Article 15 of the Sales Contract and Article 18 of the Service Contract both state that "[a]ny controversy, dispute or claim arising out of or relating to [these contracts] or breach thereof shall be settled by arbitration in the City of Zurich, Switzerland, in accordance with the laws of the Government of Iran in effect as of the date of [these contracts]." Iran and Cubic appointed their respective Arbitrators in 1992, and the ICC appointed a Panel Chair on May 6, 1993. On July 14, 1993 the Parties attended a pre-hearing conference at which the Terms of Reference for the Arbitration were decided.
On August 11, 1993, the ICC ordered bifurcation of the dispute, deferring the issue of quantification of the claim and counterclaim. Thus, on June 13-15, 1994, a hearing was held on all issues except for the quantification pursuant to the August 11, 1993 Order. On April 6, 1995, the ICC Tribunal issued an Order finding that Iran's claim for reimbursement and Cubic's counterclaim were not time-barred by the Iranian statute of limitations and that the bifurcation of the proceedings was no longer applicable.
Another hearing was held on November 7-9, 1995. On December 1, 1995 the ICC ordered further briefing by the Parties. On May 5, 1997, the ICC issued its Final Award:
Cubic Defense System[s], Inc .... shall pay the Islamic Republic of Iran ... the amount of U.S. Dollars 2,808,519.__, together with (simple) interest on such amount at the rate of 12% per annum as from September 24, 1991 until the date of this Final Award.
. . . . .
[Cubic] shall reimburse [Iran] the amount of USD 60,000.__ advanced by [Iran] in excess of its 50% share in the Parties' cost deposits.
(Award § 21). The ruling was issued by the Panel Chair, with dissents from both Arbitrators. In sum, one Arbitrator dissents on the ground that Iran is entitled to more relief than awarded and the other Arbitrator dissents in judgment finding for Cubic. Iran filed its petition for an order confirming this Award on June 25, 1998. Cubic cross-motioned for an order vacating this Award on October 9, 1998.
The Court is asked to confirm the ICC Award pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards ("Convention"), opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3, reprinted in 9 U.S.C. §§ 201-208. The United States became a party to the Convention in 1970, and Congress soon after enacted legislation implementing the provisions of the Convention into domestic law, codified as Chapter II of the Federal Arbitration Act ("FAA"), Pub.L. 91-368, 84 Stat. 692 (1970) (codified at 9 U.S.C. §§ 201-208). A district court's "review of a foreign arbitration award is quite circumscribed." Ministry of Defense of the Islamic Republic of Iran v. Gould, Inc., 969 F.2d 764, 770 (9th Cir.1992). There is a general pro-enforcement bias under the Convention. See Id.; see also Scherk v. Alberto-Culver Co., 417 U.S. 506, 519-20 & n. 15, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974). Upon application for an order confirming the award, the "district court has little discretion: `The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.'" Ministry of Defense, 969 F.2d at 770 (citing 9 U.S.C. § 207).
The grounds for refusing to recognize or enforce an arbitral award include:
(a) The parties to the agreement ... were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or the arbitration proceedings or was otherwise unable to present [his or her] case; or
(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, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contain decisions on matters submitted to arbitration may be recognized and enforced;....2
Convention, art. V(1). In particular, courts should narrowly construe Article V(1)(c) in accordance with the Convention's general pro-enforcement bias. See Ministry of Defense, 969 F.2d at 770.
Section 10 of the FAA and case law addressing domestic arbitration set forth grounds upon which a court may refuse to confirm an arbitration award. These grounds, however, are not applicable to confirmation under the Convention. The statute implementing the Convention states that a "court shall confirm the award unless it finds one of the grounds for refusal ... specified in the said Convention." 9 U.S.C. § 207. Thus, other provisions regarding arbitration are not applicable to petitions requesting confirmation of an arbitration award under the Convention. See Ministry of Defense, 969 F.2d at 770 (); Management & Technical Consultants S.A. v. Parsons-Jurden Int'l Corp., 820 F.2d 1531, 1533-34 (9th Cir.1987) (); see also Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1446 (11th Cir.1998) (); Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 20 (2d Cir.1997) (); M & C Corp. v. Erwin Behr GmbH & Co., 87 F.3d 844, 851 (6th Cir.1996) ().
Cubic first contends that the ICC Award violates Article V(1)(c) of the Convention because it "deals with a difference not contemplated by or not falling within the terms of the submission to arbitration" and it "contains decisions on matters beyond the scope of the submission to arbitration."3 Cubic also alleges that the award violates Article V(1)(c) because it ignores the terms of the Parties' Contracts. Thus, Cubic argues that the "Terms of Reference constitute the jurisdictional mandate of an arbitral panel, and...
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