Intern. Standard Elec. v. Bridas Sociedad Anonima

Decision Date24 August 1990
Docket NumberNo. 90 Civ. 0720 (KC).,90 Civ. 0720 (KC).
Citation745 F. Supp. 172
CourtU.S. District Court — Southern District of New York

Edwin A. Kilburn and Roger W. Langsdorf, New York City, David J. Branson, Tracey E. Aronson, Peter C. Condron, Kaye, Scholer, Fierman, Hays & Handler, Washington, D.C., for petitioner.

Jerry Lawrence Siegel and Sergio Le Pera, Le Pera & Lessa, New York City, Leandro N. Alem, Buenos Aires 1001 Argentina, for respondent.


CONBOY, District Judge:

In this action, the parties seek, on the one side, to vacate a foreign arbitration award, and, on the other, to enforce that award pursuant to an international convention. This case, then, requires us to evaluate and apply the relevant standards for vacatur and enforcement of an award made under the aegis of the International Chamber of Commerce Court of Arbitration in Paris.


Petitioner, International Standard Electric Corporation ("ISEC"), is a wholly owned subsidiary of the International Telephone and Telegraph Company ("ITT"). Respondent Bridas Sociedad Anonima Petrolera, Industrial Y Comercial ("Bridas") is a corporation organized and doing business in Argentina. At issue in this case is the interpretation of certain provisions of the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention" or the "Convention"), signed in New York City on June 10, 1958, 3 U.S.T. 2517, T.I. A.S. No. 6997, 330 U.N.T.S. 38, and implemented after United States ratification in 1970 at 9 U.S.C.A. §§ 201 et seq. (West Supp.1990).

A brief preliminary account of events leading to this lawsuit is, at this point, essential, which account is primarily distilled from the arbitral record of this case. By the late 1970's, the American corporation ITT had established itself as a global pace setter in the telecommunications industry. It conducted its international business through ISEC, which was its wholly owned subsidiary. ISEC in turn controlled more than 50% of the Argentine telecommunications market through its wholly owned subsidiary, Compania Standard Electric Argentina S.A. ("CSEA"). In 1978, ISEC offered, and Bridas accepted 25% participation in CSEA for $7.5 million. The parties entered into a Shareholders Agreement (the "Agreement") (Ex. G, Bridas' Notice of Motion, dated March 21, 1990, hereinafter "Bridas Notice") on May 7, 1979 to control the terms of their arrangement. Chapter 11 of the Agreement provides that "all disputes connected to this Agreement ... shall be settled or finally decided by one or more arbitrators appointed by the International Chamber of Commerce in accordance with the Rules of Conciliation and Arbitration." Chapter 8 of the Agreement provides that the Agreement would be "governed by and construed under and in accordance with the laws of the State of New York."

On April 17, 1985 Bridas filed with the International Chamber of Commerce ("ICC") in Paris a Request for Arbitration and Summary of Complaint, and nominated as a member of the Arbitral Panel Dr. Eduardo Jimenez de Ariechaga of Uruguay, former President of the International Court of Justice at the Hague. ISEC sought to block the arbitration by applying for injunctive relief in the New York State Supreme Court, which relief was denied on June 11, 1985. See Bridas S.A.P.I.C. v. International Standard Electric Corp., 128 Misc.2d 669, 490 N.Y.S.2d 711 (Sup.Ct. N.Y.Cty.1985). In July of 1985, ISEC nominated as a member of the Arbitral Panel Edward Hidalgo, Esq. of the United States, a practicing attorney and former Secretary of the Navy in the Administration of President Carter. On September 25, 1985, the ICC International Court of Arbitration designated as the third and presiding member of the Arbitral Panel Lic. Manuel Lizardi Albarran of Mexico. Mexico City was designated as the place of the arbitration, and pursuant to Article 9(2) of the ICC Rules, each party was directed to pay one half of the ICC advance on costs of $190,000.

On February 27, 1986, the Appellate Division of the New York State Supreme Court unanimously affirmed the denial of ISEC's attempt to enjoin the arbitration. 117 A.D.2d 1027, 499 N.Y.S.2d 566 (1st Dep't 1986). On July 24, 1986, ISEC filed "Objections to Jurisdiction" with the Arbitral Panel, asserting lack of jurisdiction over three of the four claims set forth in Bridas' complaint. On August 19 and 20, 1986, the Arbitral Panel conducted a hearing in Mexico City, heard argument on the jurisdictional question, and in conjunction with the parties drafted the Terms of Reference, which were then signed by the parties. These terms defined the issues to be decided. The Panel also established a schedule for the submission of briefs on the jurisdictional question.

Shortly after both parties had submitted their briefs on that matter, the ICC International Court of Arbitration, on November 7, 1986, suspended the arbitral proceedings because of ISEC's refusal to pay its half of the ICC advance on costs. On February 17, 1987, Bridas filed suit against ISEC in New York State Supreme Court to compel ISEC to comply with its costs obligations under the Rules. Four months later, Bridas posted a letter of credit with the ICC guaranteeing payment of ISEC's share of the costs, and the suspension on the proceedings was lifted.

On September 1, 1987, the Panel held a hearing and heard oral argument on the jurisdictional issues, and shortly thereafter, on October 22, 1987 issued a "Preliminary Award on Jurisdiction," concluding that the relevant clause is "sufficiently broad to comprehend the particular dispute now before it and to permit it to proceed to a full consideration of the merits of such dispute...." Bridas Notice, Exhibit F, ¶ 8. On December 18, 1987, ISEC filed its Answer to the Complaint, and on March 15, 1988, the Panel issued a schedule for submissions of evidence, expert opinions and memoranda of law. On nine separate dates from June 6, 1988 through November 28, 1988 the parties filed a daunting volume of material with the Panel, including affidavits from no less than seven experts.

On December 8-10, 1988, the Panel met and announced its intention to appoint an independent expert in New York corporate and contract law to advise it, pursuant to Article 14(2) of the ICC Rules. It declined to advise the parties of the identity of the expert selected. The Record demonstrates that Bridas objected in the most vociferous and comprehensive terms to this procedure. In contrast, ISEC merely expressed concern lest the proposed expert have a possible conflict of interest in the relevant sector of legal practice. The Panel assured ISEC in writing that the expert had no legal practice, but was rather a law professor in New York. ISEC said no more, and proceeded to promptly pay its share of the expert's fee. This remains the only portion of its fair share of the costs that ISEC has paid.

On January 16, 1989, at the request of the Panel, each party filed the full text of all authorities, including cases, statutes, rules and all other sources, upon which it relied. The material submitted by ISEC contained no reference to the aforementioned court expert selection procedure. Nor was any reference made to it by ISEC either in the final hearing before the Panel in Mexico City on March 30-31, 1989 or in the final Reply Memorandum and Exhibits filed by ISEC with the Panel on April 25, 1990.

On December 20, 1989, the Panel, in accordance with the rules which require the advance review and approval by the ICC International Court of Arbitration, signed the final Award, which was released and issued to the parties on January 16, 1990.

The Arbitral Award ("Award") (Bridas Notice, Ex. A.), found unanimously by the Panel, concluded that Bridas had not established that ISEC had made misrepresentations or committed fraud in connection with the sale of certain stock to Bridas in 1979 (Award at 17); that Bridas had not established that ISEC had unlawfully mismanaged CSEA (Award at 18); that Bridas had established that in July of 1984 ISEC breached its fiduciary obligations to Bridas in connection with a 1984 recapitalization of CSEA (Award at 19-20); and that Bridas had established that in March of 1985 ISEC breached its contractual and fiduciary obligations to Bridas by selling, over Bridas' objection, its 97% interest in CSEA to Siemens, the German multinational corporation and a major competitor of Bridas in Argentina. The Panel also concluded that ISEC had failed to "comply with the norms of good faith demanded of a fiduciary" by not giving Bridas adequate notice of the proposed sale and its terms (Award at 21-24). Though describing these findings against ISEC as erroneous, ISEC concedes that they are beyond this Court's review. Memorandum of Law in Support of ISEC's Petition to Vacate and in Opposition to Bridas' Cross-Petition to Enforce Arbitration Award, dated April 27, 1990 ("ISEC Mem."), at 5, 7. The Panel awarded Bridas damages of $6,793,000 with interest at 12%, compounded annually, from March 14, 1985. Bridas was also granted $1 million in legal fees and expenses plus $400,000 for the costs of the arbitration.

On February 2, 1990, ISEC filed a petition in this Court to vacate and refuse recognition and enforcement of the Award. Respondent Bridas has cross-petitioned to dismiss ISEC's petition to vacate on the grounds that this Court lacks subject matter jurisdiction to grant such relief under the Convention, and for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(1) and (6). Bridas further cross-petitions to enforce the Award pursuant to Article III of the Convention.


We will first address the question of whether, under the binding terms of the New York Convention, we lack subject matter jurisdiction to vacate a foreign arbitral award. The situs of the Award in ...

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