Kaliroy Produce Co., Inc. v. Pac. Tomato Growers, Inc.

• Decision Date: 04 August 2010
• Docket Number: No. CIV 10-160-TUC-CKJ,CIV 10-160-TUC-CKJ
• Parties: KALIROY PRODUCE CO., INC., et al., Moving Parties, v. PACIFIC TOMATO GROWERS, INC., Responding Party.
• Court: U.S. District Court — District of Arizona

730 F.Supp.2d 1036

KALIROY PRODUCE CO., INC., et al., Moving Parties,

v.PACIFIC TOMATO GROWERS, INC., Responding Party.

No. CIV 10-160-TUC-CKJ.

United States District Court,

D. Arizona.

Aug. 4, 2010.

ORDER

CINDY K. JORGENSON, District Judge.

Pending before the Court are Moving Parties' Motion to Vacate Arbitration Award Under Federal Arbitration Act, 9 U.S.C. § 10 in Whole or in Part [Docs. 1 and 2] and Responding Party's Petition to Confirm Arbitration Award [Doc. 15]. The parties presented oral argument to the Court on June 7, 2010.

I. Factual and Procedural Background

On July 1, 2005, Pacific Tomato Growers, Ltd. ("PTG"),¹ Kaliroy Produce Co. Inc. ("Kaliroy"), and Agricola LA Primavera S.A. de C.V. ("ALP") ² entered into a Joint Venture Agreement for the purpose of growing, developing, cultivating, harvesting, packaging, shipping, distributing and selling various types of agricultural products, primarily tomatoes, in Mexico, the United States and elsewhere.

In December 2006, PTG filed an arbitration action for damages arising from Kaliroy's alleged failure to remedy its default under the JVA. See Order to Transfer Venue, CV 4:07-CV-449-DCB, Doc. 48, p. 2 of 14. On or about June 18, 2007, PTG filed suit for injunctive relief in the Business Court, a Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida, against Kaliroy alleging breach of agreement. Id. Kaliroy alleged a breach of agreement against PTG in a counterclaim. The matter was removed to the United States District Court, Middle District of Florida. On or about August 29, 2007, that court ordered the matter transferred to the District of Arizona. Subsequently, the matter was voluntarily dismissed without prejudice by PTG. See 4:07-CV-449-DCB.

The parties proceeded to arbitration under the Rules of Arbitration of the International Chamber of Commerce. The final arbitration hearing was held August 18-28, 2008, in Scottsdale, Arizona.³ The Arbitral Tribunal ("Tribunal") issued its Arbitration Award ("Award") on December 6, 2009. ⁴ The Award provides that ALP shall pay PTG $3,748,243, Kaliroy shall pay PTG $1,154,797, and PTG shall pay Kaliroy $1,513,851. Prejudgment interest was awarded as indicated in the Award. The Award was transmitted to the parties on December 14, 2009.

On March 15, 2010, Movants initiated the present action by filing a Motion to Vacate Arbitration Award Under Federal Arbitration Act, 9 U.S.C. § 10 in Whole or in Part [Docs. land 2].

II. Jurisdiction and Applicable Standards

The parties agree the Award falls under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the "New York Convention"), 9 U.S.C. §§ 201-208, Publ. 91-368, 84 Stat. 692 (July 31, 1970), 21 U.S.T. 2517, 330 U.N.T.S. 38 (the "Convention"). Jurisdiction in this Court is proper: "an action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States ... shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy." 9 U.S.C. § 203.

The Convention "appl[ies] to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought." Convention, art. I(1). An award is non-domestic when it involves a party either domiciled or with its principal place of business outside the United States. 9 U.S.C. § 202 (2006) ("[a]n agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states."); Indus. Risk Ins. v. M.A.N. Gutehoffnungshutte, 141 F.3d 1434, 1441 (11th Cir.1998) (arbitral award made in the United States, under United States law, fell under Convention because one party was a German corporation); Ministry of Defense of Islamic Republic of Iran v. Gould Inc., 887 F.2d 1357, 1362 (9th Cir.1989) (holding "the award is obviously not domestic in nature because Iran is one of the parties to the agreement.").

This case involves one foreign party (ALP) and two domestic parties (PTG and Kaliroy), and principally involved conduct and contract performance in the United States and Mexico. Moreover, the Tribunal applied Arizona law in issuing the Award. The Award is non-domestic and within the scope of the Convention.

PTG asserts that the vacation or enforcement of the Award is governed exclusively by the Convention. Indus. Risk Ins., 141 F.3d at 1441-46 (finding an arbitral award falling under Convention and made in Florida under Florida law was subject to vacation only under the Convention standard, without regard to standards set forth in Chapter I of the FAA or any other grounds not specified in the Convention); ( M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 851 (6th Cir.1996)); Mgmt. & Technical Consultants S.A. v. Parsons-Jurden Int'l Corp., 820 F.2d 1531, 1533-34 (9th Cir.1987).

PTG points out that whether the Convention's grounds for vacation are exclusive has not been determined by the Ninth Circuit Court of Appeals. See LaPine v. Kyocera Corp., 2008 WL 2168914 at *5, *6 (N.D.Cal.2008) ("In the absence of further guidance from the Ninth Circuit, the court concludes that the appropriate standard of review is under both Article V [of the Convention] and 9 U.S.C. section 10."). Although PTG acknowledges that the Second Circuit has determined that the Convention may not be exclusive, Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15 (2nd Cir.1997) (interpreting the Convention to contain an exception when vacation of the arbitral award is sought in the nation where the award was entered), PTG argues that this Court should follow the explicit language of the Convention that states its grounds are exclusive.

Movants argue, however, that the Convention allows courts of the forum country to set aside a non-domestic award on aforum state' arbitral law. Convention, Article V(1)(e) (a non-domestic award may be refused enforcement where it "has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award is made"). Movants point out that the Tribunal purported to rule under Arizona law within the state of Arizona.

Furthermore, Movants assert that a number of cases have determined that the Convention and the FAA overlap and that domestic FAA grounds also apply in considering whether an arbitral award should be vacated. Yusuf Ahmed Alghanim & Sons, W.L.L. 126 F.3d at 21; Bergesen v. Joseph Muller Corp., 710 F.2d 928, 934 (2d Cir.1983) ("There is no reason to assume that congress did not intend to provide overlapping coverage between the Convention and the Federal Arbitration Act."); Jacada, Ltd. v. Int'l Mktg. Strategies, Inc., 401 F.3d 701, 709 (6th Cir.2005), abrogated on other grounds (because "award was made in the United States," court "appl[ied] domestic law, found in the FAA, to vacate the award"); Lander Co. v. MMP Investments, 107 F.3d 476 (7th Cir.1997) ("Nothing in the Convention or its history, or in the implementing legislation or its history, suggests exclusivity...."). Movants also cite to a California district court case that has recognized that the issue is no longer an open question in the majority of courts which have addressed the issue. LaPine, 2008 WL 2168914 at 6 ("the appropriate standard of review is under both Article V and 9 U.S.C. § 10").

As pointed out by the Seventh Circuit, Art. VII of the Convention provides:

[T]he Convention shall not "deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or the treaties of the country where such award is sought to be relied upon." 21 ACED at 2520-21. We agree with the Second Circuit that there is "no reason to assume that Congress did not intend to provide overlapping coverage between the Convention and the Federal Arbitration Act." Bergesen v. Joseph Muller Corp., 710 F.2d 928, 934 (2d Cir.1983).

Lander Co., Inc., 107 F.3d at 481. Indeed, one treatise has stated:

"By its silence on the matter, the Convention does not restrict the grounds on which primary-jurisdiction courts may annul an award, thereby leaving to a primary jurisdiction's local law the decision whether to set aside an award." [ Karaha Bodas Co., L.L.C. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357, 368 (5th Cir.2003) ]. One would expect many other circuits to follow suit.

Ved P. Nanda and David K. Pansius, 3 Litigation of International Disputes in U.S. Courts § 19:14 (March 2010). Because the Convention does permit courts of the forum country to set aside a non-domestic award based on a forum state's arbitral law and the Ninth Circuit has not yet addressed this issue, the Court finds the Convention's remedies are not exclusive.

The FAA states:

If the parties in their agreement have agreed that a judgment of the Court shall be entered upon the award made pursuant to the arbitration, and shall specify the Court, then at any time within one year after the award is made, any party to the arbitration may apply to the Court so specified for an order confirming the award, and there-upon the Court must grant such order unless the award is vacated, modified, or corrected ...

9 U.S.C. § 9. A court must confirm an arbitration award unless it is vacated, modified, or corrected as prescribed by the FAA. Schoenduve, 442 F.3d at 731. In other words, in light of the determinationthat the Convention is not exclusive, this Court also has jurisdiction under the FAA.

The FAA reflects a strong federal policy favoring arbitration. A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 1401, 1404 n. 2 (9th Cir.1992). Moreover, the strong federal policy in favor of arbitration applies ...