Banco De Santander Cen. Hispano v. Consalvi Intn.

• Decision Date: 30 March 2006
• Docket Number: No. 05 Civ. 9904(PAC).,05 Civ. 9904(PAC).
• Citation: 425 F.Supp.2d 421
• Parties: BANCO DE SANTANDER CENTRAL HISPANO, S.A., Plaintiff, v. CONSALVI INTERNATIONAL INC., Defendant.
• Court: U.S. District Court — Southern District of New York

425 F.Supp.2d 421

BANCO DE SANTANDER CENTRAL HISPANO, S.A., Plaintiff, v. CONSALVI INTERNATIONAL INC., Defendant.

No. 05 Civ. 9904(PAC).

United States District Court, S.D. New York.

March 30, 2006.

Ronald S. Rolfe, Cravath, Swaine & Moore LLP, New York City, for Plaintiff.

Joel B. Harris, Oliver J. Armas, Thacher Profitt and Wood LLP (Two World Fin. Ctr.), New York City, for Defendant.

MEMORANDUM DECISION AND ORDER

CROTTY, District Judge.

On November 4, 2005, Banco De Santander Central Hispano, S.A. ("Banco") instituted an action in New York Supreme Court, pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 10, to vacate an arbitration award, on the grounds that the arbitrators acted in manifest disregard of the law. On November 23, 2005, Consalvi International Inc. ("Consalvi") filed a petition to remove the state action to Federal Court, pursuant to the removal statute 28 U.S.C. § 1441(b) and the removal provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention" or the "Convention"). 9 U.S.C. § 205. Seven days later, Consalvi filed its cross-petition to confirm the arbitration award pursuant to 9 U.S.C. § 207.

Banco now moves to remand its vacatur action to New York State Supreme Court, on the ground that this Court lacks subject matter jurisdiction over its Federal Arbitration Act proceeding. Banco urges that there is neither diversity jurisdiction (both parties in the arbitration proceedings are foreigners); nor federal question jurisdiction the Federal Arbitration Act, 9 U.S.C. § 10, while creating substantive law, does not create "subject matter jurisdiction," Perpetual Sec., Inc. v. Tang, 290 F.3d 132, 136 (2d Cir.2002).

Consalvi, on the other hand, contends the New York Convention and its implementing legislation (9 U.S.C. §§ 201-08 or Chapter 2 of the FAA) are a clear grant of jurisdiction to enforce arbitral awards. 9 U.S.C. § 205 specifically authorizes removal in a case related to the New York Convention.

The Court holds that, under § 205, it has removal jurisdiction over Banco's vacatur action and, thus, denies Banco's motion to remand.

FACTS

In October 2000, Consalvi (a company incorporated in the British Virgin Islands) and others entered into an agreement to which Banco (a bank incorporated under the laws of Spain) acceded. The agreement dealt with the combination of two internet companies and contemplated a potential public offering. Consalvi, as an investor, sought and was granted a put option, that provided it with a way to dispose of its interest, in the event that a public stock offering were not to occur. The agreement called for the buy-out of Consalvi's interest, via a swap for other shares, and the right to put those exchanged shares to Banco at a price to be determined under the agreement. The agreement was written in Spanish and was to be interpreted in accordance with Spanish law. None of the companies party to the agreement were American companies or were located in the United States. The agreement called for the arbitration of any disputes to take place in New York, under the rules of the American Arbitration Association and its International Centre for Dispute Resolution.

On October 6, 2003, Consalvi put its exchanged shares to Banco and sought a price of $67,385,913, which represented its interpretation of the pricing arrangement in the agreement. As the market for Internet stocks had by this time collapsed, it is not surprising that Banco refused to pay this amount, and, instead, offered a far lesser amount. Unable to resolve their disagreement, the parties resorted to the arbitration provision of the agreement.

Consalvi called for arbitration on January 23, 2004, and sought $67,385,913. On March 27, 2005, the three Spanish arbitrators, who had been appointed to the panel, commenced the proceeding. Both parties to the arbitration were well represented, and exercised in full measure their opportunity to submit briefs, exhibits, witness statements and expert reports. The arbitrators heard live testimony-again, in Spanish. Subsequent to the hearing, the parties asked for, and the arbitrators permitted, another round of briefs. The arbitration concluded on May 31, 2005 after the post-hearing submissions. The arbitration panel made its award on September 1, 2005, with one arbitrator dissenting, and ruled that Consalvi had the right to put its exchanged shares to Banco and that Banco was obligated to pay $67,385,913, plus interest.

On September 27, 2005, Banco asked for an "Interpretation and Correction" of the award. On October 21, 2005, the arbitration panel issued a "Resolution of the Request for Interpretation and Correction of the Award," which confirmed the aspects of the award which Banco questioned.

Banco then switched law firms. New counsel devised a creative approach to the arbitration proceeding, claiming that the award was not based on the agreement and that it was in manifest disregard of the law. Accordingly, Banco filed its action in New York State Supreme Court to vacate the arbitration award, pursuant to 9 U.S.C. § 10. Having won the race to the courthouse door, Banco now seeks to return to State Court.

DISCUSSION

The issue which the Court must decide is whether it has removal jurisdiction over Banco's petition to vacate the arbitration award for manifest disregard of the law. The Supreme Court has noted that:

"The requirement that jurisdiction be established as a threshold matter .. is `inflexible and without exception'," Steel Co. v. Citizens for Better Env't, 523 U.S. [83, 94-95, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)] (quoting Mansfield, C. & L.M.R. Co. v. Swan, 111 U.S. 379, 382, 4 S.Ct. 510, 28 L.Ed. 462 (1884)); for "jurisdiction is power to declare the law," "`and without jurisdiction the court cannot proceed at all in any cause'." 523 U.S. at 94, 118 S.Ct. 1003 (quoting Ex parte McCardle, 7 Wall. 506, 74 U.S. 506, 19 L.Ed. 264 (1868)). . . .

. . . . .

Customarily, a federal court first resolves doubts about its jurisdiction over the subject matter . . . .

Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 577, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999).¹ Recently, the Second Circuit reiterated that "[j]urisdictional questions . . . should be addressed in the first instance by the District Court." Central States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433 F.3d 181, 203 (2d Cir.2005). This is equally true in the context of removal. McRae v. Arabian American Oil Co., 293 F.Supp. 844, 846 (S.D.N.Y.1968) ("A district court is required . . . to . . . determine federal jurisdiction of a removed case and to be sure that federal jurisdiction exists.") (citations omitted); see also U.S. Express Lines Ltd. v. Higgins, 281 F.3d 383, 389 (3d Cir.2002) (stating that the obligation of the federal courts to examine subject matter jurisdiction extends to removal cases). Determination of whether the Court has removal jurisdiction in the instant case turns on the interplay between the general removal provision, 28 U.S.C. § 1441, the FAA's specific removal provision for agreements and awards falling under the Convention, 9 U.S.C. § 205, and the grant of original jurisdiction for actions falling under the Convention. 9 U.S.C. § 203. Preliminarily, the Court notes that the jurisprudence in this area is not well-settled, and the Second Circuit has not addressed this issue specifically.

Consalvi seeks to remove the state-court action "[p]ursuant to provisions of 9 U.S.C. § 205 and 28 U.S.C. § 1441(b)" (Resp.'s Notice of Removal ¶ 1). The Court first considers removal pursuant to the general removal provision, 28 U.S.C. § 1441, and then under the specific removal provision contained in Chapter 2 of the FAA, which implements the New York Convention. 9 U.S.C. § 205.

I. Removal Pursuant to 1441—General Framework

In City of Chicago v. International College of Surgeons, the Supreme Court described removal jurisdiction under 28 U.S.C. § 1441 as follows:

As a general matter, defendants may remove to the appropriate federal district court "any civil action brought in a State court of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). The propriety of removal thus depends on whether the case originally could have been filed in federal court. Caterpillar Inc. v. Williams, 482 U.S. [386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987)]; Franchise Tax Bd. v. Construction Laborers Vacation Trust for S. Cal., 463 U.S. [1, 8, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)]. The district courts have original jurisdiction under the federal question statute over cases "arising under the Constitution, laws, or treaties of the United States." § 1331. "It is long settled law that a cause of action arises under federal law only when the plaintiffs well-pleaded complaint raises issues of federal law." Metropolitan Life Ins. Co. v. Taylor, 481 U.S. [58, 63, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987)].

522 U.S. 156, 163, 118 S.Ct. 523, 139 L.Ed.2d 525 (1997). Thus, "[o]nly state-court actions that originally could have been filed in federal court may be removed to federal court by the defendant[;] absent diversity of citizenship, federal-question jurisdiction is required." Caterpillar Inc. v. Williams, 482 U.S. at 392, 107 S.Ct. 2425.

Banco urges that it could not have commenced its state-court action in federal court. There is no diversity (both being foreign entities). Ruhrgas AG v. Marathon Oil Co., 526 U.S. at 580 n. 2, 119 S.Ct. 1563 (foreign citizenship of defendant and of plaintiff rendered diversity incomplete). Nor is there subject matter jurisdiction (adjudication of FAA claims in district court require an independent basis for federal subject matter jurisdiction). Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 26, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The plaintiff's "well-pleaded complaint," thus, does not "raise[ ] issues of...