Blasket Renewable Invs. v. Kingdom of Spain
| Decision Date | 29 March 2023 |
| Docket Number | CIVIL 21-3249 (RJL) |
| Parties | BLASKET RENEWABLE INVESTMENTS, LLC,[1] Petitioner, v. THE KINGDOM OF SPAIN, Respondent |
| Court | U.S. District Court — District of Columbia |
[DKT. ## 15, 40]
In 2007, two Dutch companies, AES Solar Energy Cooperatief U.A and Ampere Equity Fund B.V. (collectively, the “Companies”), invested in renewable energy projects in order to take advantage of favorable tax incentives offered by the Kingdom of Spain (“Spain”). However, in the wake of the 2008 financial crisis, Spain implemented reforms in its energy sector that had the effect of reducing the value of the Companies' investment. The Companies invoked the arbitration provision of the Energy Charter Treaty, to which both Spain and the Netherlands are signatories, and were awarded compensation for their losses by an arbitral tribunal seated in Switzerland. The Companies have petitioned this Court to confirm their award. Spain has moved to dismiss the petition on multiple grounds including a lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act. Because Spain's standing offer to arbitrate was void as to the Companies under the European Union law to which both Spain and the Companies are subject and which applied to the dispute by the terms of the Energy Charter Treaty itself, no valid agreement to arbitrate exists, and this Court therefore lacks the subject matter jurisdiction necessary to confirm the tribunal's award. Accordingly, I will GRANT Spain's motion [Dkt. #15] and dismiss the petition.
This case arises from a dispute between Spain and the Companies regarding the validity of an arbitration provision of the Energy Charter Treaty (“ECT”) as applied to disputes between Member States of the European Union (“EU”) and investors of other EU Member States.
The ECT is a multilateral treaty intended to promote investment in energy and thereby encourage economic growth. See Energy Charter Treaty (“ECT”), Pet. to Enforce Arbitral Award Ex. 3 [Dkt. # 1-3]. Spain and the Netherlands are both signatories. See Signatories/Contracting Parties, Energy Charter Treaty, https://www.energychartertreaty.org/ treaty/contracting-parties-and-signatories/. Other than Italy, which withdrew in 2016, every other EU Member State and the EU itself are also signatories to the ECT. Id. The United States is not a signatory. Id. Among other things, the ECT obligates signatories to protect investments in their domestic territories made by investors from other signatory states. See, e.g., ECT art. 10(1). The ECT provides an enforcement mechanism to protect such cross-border investments by establishing a framework to resolve disputes between foreign investors and governments in Article 26. Id. art. 26. That article provides that any arbitral tribunal established under its authority “shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law.” Id. art. 26(6).
The underlying dispute in this case relates to investments made by the Companies in Spain in reliance on economic incentives provided by Spanish legislation. In short, Spain enacted legislation at various times prior to 2010 creating economic incentives for firms to invest in certain renewable energy projects in Spain. Final Award (“Award”) [Dkt # 1-2] ¶¶ 189-95. The Companies relied on those programs for investment in Spanish projects. Beginning in 2010, however, Spain rescinded those incentives, harming the Companies by reducing the value of their investments. Id. ¶¶ 199-207.
Not surprisingly, the Companies invoked their right to arbitration under Article 26 of the ECT in 2011. Rozen Decl. Ex. B, Preliminary Award on Jurisdiction ( ) [Dkt. #1-2] ¶ 11. The arbitral panel, which was seated in Switzerland and convened under the auspices of the United Nations Commission on International Trade Law (“UNCITRAL”), found that it had jurisdiction over the dispute in 2014 and issued an award in favor of the Companies in 2020. Id. ¶ 375(a); Award ¶¶ 847, 909(b). Spain challenged the award before the Swiss Federal Supreme Court, which dismissed the challenge and confirmed the award in 2021. Bundesgericht [BGer] [Federal Supreme Court] Feb. 23, 2021, 4A187/2020, slip op. at 11-12 (Switz.). That award is now final and not subject to further challenge in Switzerland.
The Netherlands and Spain, of course, are also members of the EU. The EU is a supra-national organization comprising 27 countries, referred to as EU Member States. Decl. of Professor Steffen Hindelang (“First Hindelang Decl.”) [Dkt. # 15-2] ¶ 30. Each EU Member State retains its sovereignty, but EU Member States are prohibited from violating EU law. Id. This legal rule is referred to as the principle of “primacy” in EU law. Id. The ultimate sources of EU law are the Treaty of European Union (“TEU”) and the Treaty on the Functioning of the European Union (“TFEU”), collectively referred to as the EU Treaties. Id¶¶ 30-31. Every EU Member State, including Spain and the Netherlands, has signed and ratified both the TEU and the TFEU as a necessary precondition of membership. Id. at 30. Among other things, the EU treaties establish the institutions of the EU and delineate powers between the EU itself and its Member States and among the EU institutions. See Id.
One of the EU institutions established by those treaties is the Court of Justice of the European Union (“CJEU”). See id. ¶ 38. The CJEU is analogous to the Supreme Court in the United States' legal system in that it is the final arbiter of questions of EU law under the EU Treaties. Id. ¶ 20. Spain's legal arguments in this case are derived from a series of decisions by that court interpreting EU law as it pertains to the validity of agreements to arbitrate between EU entities.
In 2018, the CJEU invalidated an arbitral award issued against the Slovak Republic issued under the authority of a Bilateral Investment Treaty (“BIT”) between that country and the Netherlands in a case called Achmea B. V. v. Slovak Republic ("Achmea'j., Slovak Republic v. Achmea, Case C0284/16 (6 March 2018), ECLI:EU:C:108:158, ECF No. 51-3. The basis for the court's decision is the premise that CJEU is the ultimate arbiter of EU law under the EU Treaties. As such, the interpretation of EU law by arbitral panels in cases involving EU Member States creates a risk of inconsistent application of EU law. See id.; see also First Hindelang Decl. ¶ 22. Therefore, according to the CJEU, EU Member States are prohibited from entering into a “treaty by which [it] agree[s] to remove from the jurisdiction of [its] own courts . . . disputes which may concern the application or interpretation of EU law.” Achmea ¶ 55. Doing so would violate the treaty obligations of EU Member States to uphold “the autonomy of the EU and its legal order.” Achmea ¶ 57.
Indeed, the CJEU has since extended this analysis to encompass multilateral treaties containing arbitration agreements in a September 2021 case, Republic of Moldova v. Komstroy (“Komstroy”). Case C-741/19 (2 September 2021), ECLI:EU:C:2021:655. In that case, which addressed the validity of an award issued under the ECT, the CJEU extended the core holding of Achmea to find that arbitration provisions contained in multilateral treaties are incompatible with EU law insofar as they are applied to disputes between an EU Member State and a national of another EU Member State. Id. ¶52. The Komstroy ruling expressly, and with retroactive effect, invalidated any arbitral award issued to an investor from an EU Member State (an “EU investor”) against another EU Member State because no EU Member State could make a valid offer to arbitrate such a dispute under EU law. Id. ¶ 66.
The Companies filed a petition in this Court to confirm the Award on December 10, 2021, under the authority of the New York Convention.[2] See Petition to Enforce Arbitral Award (“Petition”) [Dkt. #1]. Spain moved to dismiss on May 6, 2022. See The Kingdom of Spain's Mot. to Dismiss the Petition (“Mot. to Dismiss”) [Dkt. # 15]. The motion to dismiss has been fully briefed. See Petitioners' Response to Spain's Mot. to Dismiss (“Resp.”) [Dkt. # 20]; Reply in Support of the Kingdom of Spain's Mot. to Dismiss the Petition (“Reply”) [Dkt. #23]. With the Court's permission, the European Commission, which is the organ of the European Union responsible for representing the European Union to foreign governments, filed an amicus brief in support of Spain's motion. See Br. for the European Comm'n On Behalf Of the European Union In Support of the Kingdom of Spain (“Amicus Br.”) [Dkt. #19]. I heard oral argument on Spain's motion on October 31, 2022.
Subsequent to that round of briefing, the Companies transferred their interest in the Award issued by the arbitral tribunal to a Delaware firm, Blasket Renewable Investments LLC (“Blasket”). The Companies accordingly moved to substitute Blasket as petitioner under Federal Rule of Civil Procedure 25(c), which Spain opposed. See Mot. for Substitution [Dkt. #31]; The Kingdom of Spain's Opp. to Petitioners' Mot. for Substitution [Dkt. #37]. I granted the Companies' motion and ordered Blasket substituted as petitioner on March 7, 2023. See Minute Entry of March 7, 2023; Minute Order of March 7, 2023.
In resolving a motion to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure, “a court is not limited to the allegations in the Petition, but may also consider material outside of the pleadings in its effort to determine whether the court has jurisdiction in the case.” Rong v Liaoning...
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