Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex–Exploración Y Producción

• Decision Date: 02 August 2016
• Docket Number: August Term, 2014,Docket No. 13-4022
• Citation: 832 F.3d 92
• Parties: Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V., Petitioner–Appellee, v. Pemex–Exploración Y Producción, Respondent–Appellant.
• Court: U.S. Court of Appeals — Second Circuit

832 F.3d 92

Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V., Petitioner–Appellee,

v.Pemex–Exploración Y Producción, Respondent–Appellant.

Docket No. 13-4022

August Term, 2014

United States Court of Appeals, Second Circuit.

Argued: November 20, 2014

Decided: August 2, 2016

Catherine E. Stetson, Hogan Lovells US LLP, Washington, D.C.; on the brief : Dennis H. Tracey, III, Ira M. Feinberg, Hagan C. Scotten & Erin M. Meyer, Hogan Lovells US LLP, New York, NY; Richard C. Lorenzo, Hogan Lovells US LLP, Miami, FL, for Appellant .

Paul D. Clement (with Zachary D. Tripp & William R. Levi on the brief ), BANCROFT PLLC, Washington, D.C.; also on the brief : Jeffrey S. Bucholtz & Brian Callanan, King & Spalding LLP, Washington, DC; Richard T. Marooney & Charles C. Correll, Jr., King & Spalding LLP, New York, NY, for Appellee .

Preet Bharara (with David S. Jones, Caleb Hayes-Deats & Emily E. Daughtry on the brief ), United States Attorney for the Southern District of New York, for Amicus Curiae United States of America; also on the brief : Joyce Branda, Douglas N. Letter & Sharon Swingle, Civil Division, Department of Justice, Washington, D.C.; Mary E. McLeod, Department of State, Washington, D.C.

Erik S. Jaffe, Erik S. Jaffe, P.C., Washington, D.C., for Amicus Curiae The Government of the United Mexican States in support of Respondent–Appellant.

Peter B. Rutledge, Athens, GA, for Amicus Curiae The Chamber of Commerce of the United States of America in support of Petitioner–Appellee; on the brief : Kathryn Comerford Todd & Tyler R. Green, National Chamber Litigation Center, Inc., Washington, D.C.

Before: WINTER, JACOBS, and RAGGI, Circuit Judges.

DENNIS JACOBS

, Circuit Judge:

The truly unusual procedural history of this case requires us to reconcile two settled principles that militate in favor of opposite results: a district court's discretion to confirm an arbitral award, and the comity owed to a foreign court's ruling on the validity of an arbitral award rendered in that country, here, Mexico. Petitioner-appellee Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. (“COMMISA”) contracted with respondent-appellant Pemex-Exploración Y Producción (“PEP”), a state-owned enterprise, to build oil platforms in the Gulf of Mexico. The contracts provided that arbitration would be the exclusive mechanism for dispute resolution. When the parties' relationship disintegrated, each side accused the other of breach. COMMISA initiated arbitration proceedings, prevailed, and in 2009 obtained an award of approximately $300 million.

COMMISA then petitioned the United States District Court for the Southern District of New York (Hellerstein, J.) (“Southern District”) for confirmation of the award, which was done. PEP appealed the district court's judgment to this Court (“First Appeal”) and simultaneously attacked the arbitral award in the Mexican courts. The Eleventh Collegiate Court in Mexico set aside the arbitral award on the ground that PEP, as an entity deemed part of the Mexican government, could not be forced to arbitrate. Armed with that decision, PEP moved in this Court to vacate the Southern District's judgment and remand the First Appeal in light of the Eleventh Collegiate Court's decision. We granted that motion. On remand, the Southern District conducted an evidentiary hearing, adhered to its previous ruling, issued a new judgment confirming the arbitral award, and thus set the stage for the present appeal.

We hold that the Southern District properly exercised its discretion in confirming the award because giving effect to the subsequent ification of the award in Mexico would run counter to United States public policy and would (in the operative phrasing) be “repugnant to fundamental notions of what is decent and just” in this country. We further conclude that PEP's personal jurisdiction and venue objections are without merit. Finally, we hold that the Southern District did not exceed its authority by including in its judgment $106 million attributed to performance bonds that PEP collected. The judgment is affirmed.

BACKGROUND

This protracted litigation, begun in 2004, has challenged the courts of two countries. We summarize here only those facts useful for understanding the issues presented and our resolution of them.

1.

COMMISA is a Mexican subsidiary of KBR, Inc., a United States construction and military-contracting corporation. PEP is one of four subsidiaries of Petroleos Mexicanos (“PEMEX”), an oil and gas company acting on behalf of the Mexican government. PEMEX and PEP are public entities of the Mexican government, but have the capacity to independently own property and carry out business under their own names. Together, PEMEX and its subsidiaries “comprise the state oil and gas company of ... Mexico.” Joint Appendix (“J.A.”) at 1515.

In 1997, COMMISA and PEP contracted for COMMISA to build oil platforms in the Gulf of Mexico. The contract, governed by Mexican law, contained the following arbitration clause:

23.3 Arbitration . Any controversy, claim, difference, or dispute that may arise from or that is related to, or associated with, the present Contract or any instance of breach with the present Contract, shall be definitively settled through arbitration conducted in Mexico City, D.F., in accordance with the Conciliation and Arbitration Regulations of the International Chamber of Commerce that are in effect at that time. The arbitrators shall be three in number, and the language in which the arbitration shall be conducted shall be Spanish.

J.A. at 93. PEP's (now disputed) authority to bind itself to arbitration was premised on the following provision of the “PEMEX and Affiliates Organic Law”:

In the event of international legal acts, Petróleos Mexicanos or its Affiliates may agree upon the application of foreign law, the jurisdiction of foreign courts in trade matters, and execute arbitration agreements whenever deemed appropriate in furtherance of their purpose.

Special Appendix (“SPA”) at 41.

Two other provisions of the contracts bear on this appeal. One clause gave PEP the unilateral right to “Administrative Rescission” if COMMISA breached the contract or abandoned its work; another clause required COMMISA to post performance bonds.

2.

Difficulties arose, in part over PEP's insistence that the platforms be fully constructed before being put into place in the Gulf of Mexico, something COMMISA considered impractical given the weight of the completed platforms. Logistics and cost issues abounded, prompting the parties to execute a new contract in May 2003. The 2003 contract contained virtually-identical arbitration and administrative rescission clauses.

The 2003 contract failed to resolve the parties' differences, and the conflict reached climax in March 2004 when PEP, alleging that COMMISA had failed to meet contractual milestones and had abandoned the project, gave notice of its intent to administratively rescind the contract. PEP seized the platforms, which were 94 percent complete; ejected COMMISA from the work sites; and gave notice by letter of its intention to administratively rescind the contracts. After a fruitless conciliation effort, COMMISA filed a demand for arbitration with the International Chamber of Commerce in December 2004. When PEP informed COMMISA two weeks later that it was indeed effecting administrative rescission, COMMISA filed an amparo action in the District Court on Administrative Matters for the Federal District (“Mexican District Court”) challenging the constitutionality, appropriateness, and timeliness of PEP's administrative rescission¹ ; COMMISA lost on all counts.

During the pendency of the amparo action, arbitration proceedings began in Mexico City in May 2005, with the active participation of both parties.

In November 2006, the arbitration panel issued its Preliminary Award, finding that it possessed jurisdiction over the dispute and enjoining PEP from attempting to collect on the performance bonds until the issuance of a final arbitral award authorizing collection. Prior to the issuance of the Preliminary Award, PEP's arguments did not include a contention that its administrative rescission was an act of authority not subject to arbitration under Mexican law.

3.

Two developments in Mexican law transpired while arbitration proceedings were ongoing. In December 2007, the Mexican Congress changed the available forum for claims that (like COMMISA's) raise issues related to public contracts, and vested exclusive jurisdiction for such disputes in the Tax and Administrative Court. Not incidentally, the switch curtailed the applicable statute of limitations: previously, ten years for suits in the Mexican District Courts; afterward, for suits in the Tax and Administrative Court, 45 days.

Second, in May 2009, the Mexican Congress enacted Section 98 of the Law of Public Works and Related Services (“Section 98”), which ended arbitration for certain claims (such as those by COMMISA):

An arbitration agreement may be executed regarding the disputes arising between the parties related to the construction of contractual clauses or related to issues arising from the performance of the contracts ... The administrative rescission, early termination of the contracts and such cases as the Regulation of this Law may determine may not be subject to arbitration proceedings.

J.A. at 3758.

4.

Promptly after the issuance of the Preliminary Award in November 2006—and before the enactment of Section 98—PEP asked the arbitration tribunal to reconsider its Preliminary Award and—for the first time—contended that administrative rescission was categorically exempt from arbitration as an act of authority on behalf of the Mexican government. The tribunal rejected this argument in its December 2009 Final Award, and, in a voluminous decision, found that PEP breached the contracts and awarded COMMISA approximately $300 million in damages.

COMMISA raced to confirm the award in the Southern District, which ruled...