Carlton Energy Grp. v. Cliveden Petroleum Co.
| Decision Date | 22 June 2022 |
| Docket Number | Civil Action 4:22-cv-00170 |
| Parties | Carlton Energy Group, LLC, Plaintiffs, v. Cliveden Petroleum Company Limited, et al. Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Carlton Energy Group, LLC, Plaintiffs,
v.
Cliveden Petroleum Company Limited, et al. Defendants.
Civil Action No. 4:22-cv-00170
United States District Court, S.D. Texas
June 22, 2022
OPINION ON AWARD AND FEES
Lynn N. Hughes United States District Judge
1. Introduction.
Carlton Energy Group seeks to confirm an arbitration award against Cliveden Petroleum Company. The award arose from a breach of a contract based on Carlton's assignment of oil interests in Chad to Cliveden.
2. Background.
In 2000, Carlton and Cliveden contracted to assign Carlton's interest in an oil concession in Chad to Cliveden in exchange for 10% of its quarterly profits. The agreement contained a binding arbitration clause.
A. Pre-Arbitration.
In 2012, Carlton sued Cliveden to enforce the arbitration clause. Eight months later, the case was removed. Carlton filed an amended complaint adding Cliveden's alleged alter-egos, successors, or agents. Cliveden has six:
(1) PetroChina Company Limited
(2) China National Oil and Gas Exploration and Development Corporation Corporation
(4) China National Oil and Gas Exploration and Development International Holding Ltd
(3) China Petroleum Exploration GT Development Company Limited
(5) CNPC International (Chad) Ltd.
(6) CNPC International (Chad) Co. Ltd.
In proceedings with the Magistrate Judge, the parties vehemently disputed the jurisdiction of the non-signatory defendants in the assignment agreement as successors-in-interest or alter-egos. For five years, Carlton asked and received discovery to determine the character of Cliveden's alter-egos. The defendants eventually stipulated that they would voluntarily submit to arbitration without conceding that they were alter egos of Cliveden. The Judge found that the nonsignatories had impliedly consented to jurisdiction - liability remained unresolved. Arbitration was ordered. The case was stayed and then dismissed, sua sponte, on August 8, 2018.
B. Arbitration.
On January 22, 2018, Carlton formally demanded an arbitration.
The first phase of arbitration was limited to deciding the contractual claim by Carlton for payment of the distributable net profits under the agreement. On December 29, 2020, the arbitrators issued a partial award that addressed the interpretation of the contract.
The second phase of arbitration resolved the calculation of net profits in a settlement agreement. Carlton agreed to accept Cliveden's payment of $140,651,997 for distributable net profits through December 31, 2020. On July 12, 2021, a consent award was filed and incorporated in the final award.
The final issue the arbitrators decided was the parties' claim to accruing interest and attorneys' fees. The parties stipulated that the final award for both phases would be limited to covering issues that were submitted. It said, “The Final Award for Phases 1 & 2 will not serve as a final award covering issues raised in [Carlton's] Demand for Arbitration that have not yet been submitted for resolution.”
On October 20, 2021, the final award was issued. The award acknowledged that the parties abated “Other Claims” - liability of the non signatories - without prejudice. It deemed that Cliveden and the non-signatories must pay $21,104,999 in pre-award interest, $5,526,000 in attorneys' fees, and
$2,937,3 25.75 for arbitration-related costs. Carlton's request for pre-arbitration attorneys' fees was denied for lack of jurisdiction by the arbitrators.
On November 2, 2021, Cliveden submitted an application to correct the final award to remove the non-signatories. The arbitrators denied the correction. It found: (1) Cliveden did not identify clerical errors in the final award; (2) the award was clear; and (3) the non-signatory defendants participated in the arbitration to the extent of their representation and advocacy. It expressly rejected attempts to consider the liability argument by Cliveden.
On January 6, 2022, Carlton moved to confirm the arbitration award. Cliveden and the other defendants cross-moved to vacate or modify the award.
3. Arbitration Award.
Review of an arbitration award is limited.[1] The law favors confirmation of an arbitration award to settle disputes efficiently and avoid lengthy litigation. The Federal Arbitration Act requires that a court confirm an arbitration award unless it finds a ground for refusal specified in the New York Convention.[2]Article 5 of the Convention says that an award may be rejected if the arbitrator resolved disputes outside of the scope of submission.[3]
A. Validity as to Cliveden.
Both parties agree that the final award applies to Cliveden. Cliveden was a party to the contract. It was a party to the arbitration. The final award says that Cliveden is liable to Carlton for the distributable net profits and interest.
The grounds for refusal of a confirmation award do not apply to Cliveden. The award against Cliveden is confirmed.
B. Validity as to Non-Signatories.
The non-signatories were named in the final award for attorneys' fees and arbitration costs. Cliveden says that the award should be vacated because the arbitrators exceeded their powers and engaged in misconduct. It says that the arbitrator lacked jurisdiction to bind the non-signatories to the final award when the issue was never presented before it. It says that the liability of the nonsignatories was expressly excluded from consideration in the arbitration. Alternately, it says that the Court should limit the award only to Cliveden.
i. Vacation of Award
The Court defers considerably to the arbitrator's decision under the Federal Arbitration Act.[4] Cliveden bears the burden of proof. Vacation of an award is appropriate if the arbitrators: (a) exceeded their powers or “imperfectly executed” their award based on an issue that was not submitted; and (b) engaged in misconduct by refusing to postpone a hearing or hear evidence pertinent to the controversy.[5] If an arbitrator does not give each of the parties an adequate opportunity to present its evidence, the Court may vacate the award.[6]
a. Misconduct.
Cliveden says that the arbitrators failure to hear evidence of nonsignatories liability constitutes misconduct. It says that the rights of the nonsignatories were prejudiced.
Carlton says that respondents' liability for interest, fees, and costs were presented to the arbitrators. It insists that the arbitrator did not refuse to hear pertinent evidence material to the controversy. It says that arbitrator considered the evidence in the non-signatories' briefs and rejected their argument.
Misconduct is a high bar. The arbitrators' refusal to hear the evidence concerning the liability of non-signatories was valid. The issue was not submitted. The final award said that issues not discussed in phase one and two were reserved.
Carlton attempts to flip the arbitrator's decision not to hear the evidence as a decision on the merits. It is not. In the arbitrators' decision on modification of the final award, they said that the arguments that Cliveden submitted for liability of the non-signatories were “novel.” If the argument is novel, it means that the argument had not been presented before the arbitrators.
The arbitrators did not engage in misconduct.
b. Extension of Power.
Cliveden says that the Court should vacate the award because the arbitrators exceeded their powers by holding the non-signatories liable for interest and attorneys' fees. It says that Carlton's request for attorneys' fees was limited to Cliveden. It insists that the liability issue was never presented to the arbitrator.
Carlton says that Cliveden's submission to the arbitrators was on behalf of the non-signatories. It insists that the non-signatories' actions to delay arbitration caused the arbitrator's to hold them jointly and severally liable for attorneys' fees. It says that they were not merely bystanders.
An arbitrator may not bind non-parties to an arbitration agreement.[7] A court has vacated an award based on extension of power when an arbitrator found a non-party to the arbitration liable for damages.[8]
The non-signatories were parties in this arbitration. The consent award did not include the non-signatories because they were not parties to the contract. The arbitrator justified their inclusion in the final award based on their representation - not liability as alter egos.
2. Modification of Award.
The Court may modify or correct an arbitration award if the arbitrator's award decides an issue not submitted that affects the merits of the award.[9]Modification or correction of an award may reopen issues. Jurisdiction is available to adjudicate related issues on a “common-sense basis.”[10]
The Court is not bound by the arbitration panel's findings that the nonsignatories are liable for attorneys' fees.[11] Judicial notice is taken of the lengthy proceedings with the Magistrate Judge that did not resolve the threshold issue of liability for the non-signatories. It remained undecided when the case was unexpectedly dismissed.
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