National Oil Corp. v. Libyan Sun Oil Co.

• Decision Date: 15 March 1990
• Docket Number: Civ. A. No. 89-415-JLL.
• Citation: 733 F. Supp. 800
• Parties: NATIONAL OIL CORPORATION, Petitioner, v. LIBYAN SUN OIL COMPANY, Respondent.
• Court: U.S. District Court — District of Delaware

733 F. Supp. 800

NATIONAL OIL CORPORATION, Petitioner, v. LIBYAN SUN OIL COMPANY, Respondent.

Civ. A. No. 89-415-JLL.

United States District Court, D. Delaware.

March 15, 1990.

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Arthur G. Connolly, Jr. of Connolly, Bove, Lodge & Hutz, Wilmington, Del., Joseph D. Pizzurro, George Kahale III, and Michelle A. Rice of Curtis, Mallet-Prevost, Colt & Mosle, New York City, for petitioner.

H. James Conaway, Jr. and David O'Connor of Young, Conaway, Stargatt & Taylor, Wilmington, Del., William D. Rogers, Douglas A. Dworkin, Ann E. Misback, and Erik T. Moe of Arnold & Porter, Washington, D.C., Stanley L. Arabis and James S. Godderz, Radnor, Pa., for respondent.

OPINION

LATCHUM, Senior District Judge.

In this case the Court has been called upon to examine and evaluate, among other things, the legal significance of the current state of relations between Libya and the United States. The facts and arguments presented by the parties have put this Court in the unenviable and precarious position of having to place legal labels on the foreign policy maneuvers of the Bush administration. Unfortunately, the Court has no choice but to proceed.

Petitioner, National Oil Corporation ("NOC"), seeks to have this Court enter an order confirming a foreign arbitral award rendered in NOC's favor against respondent, Libyan Sun Oil Company ("Sun Oil"). (Docket Item "D.I." 2 at 6-7; see Case No. 4462/AS/JRI, National Oil Corporation (Libya) v. Libyan Sun Oil Company, Inc. (U.S.A.), Exhibits B First Award & C Final Award, D.I. 3.) NOC brings this action pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the Convention"), a treaty ratified by the United States and implemented through Congressional legislation. See 9 U.S.C. §§ 201-208 (1970). Sun Oil has moved to dismiss the petition or, in the alternative, to deny recognition of the award. (D.I. 11; D.I. 12.) This Court has jurisdiction pursuant to 28 U.S.C. § 1331 as this case arises under federal law. See 9 U.S.C. § 203 (West Supp.1989).¹

FACTUAL BACKGROUND

NOC is a corporation organized under the laws of the Socialist People's Libyan Arab Jamahiriya ("Libya"), and wholly owned by the Libyan Government. (D.I. 3 at 2.) Sun Oil is a Delaware corporation and a subsidiary of Sun Company, Inc. (See D.I. 12 at 1.) The dispute currently before the Court stems from an Exploration and Production Sharing Agreement ("EPSA") entered into by the parties on November 20, 1980. (See EPSA, Annex 1, Exhibit A, D.I. 3.) The EPSA provided, inter alia, that Sun Oil was to carry out and fund an oil exploration program in Libya.

Sun Oil began exploration activities in the first half of 1981. On December 18, 1981, Sun Oil invoked the force majeure provision² contained in the EPSA and suspended performance. (D.I. 3 at 4; D.I. 12 at 6.) Sun Oil claimed that a State Department order prohibiting the use of United States passports for travel to Libya³ prevented its personnel, all of whom were U.S. citizens, from going to Libya. (D.I. 12 at 5-6.) Thus, Sun Oil believed it could not carry out the EPSA "in accordance with the intentions of the parties to the contract." (Id. at 6 footnote omitted.) NOC disputed Sun Oil's claim of force majeure and called for continued performance. (D.I. 3 at 4.)

In March of 1982, the U.S. Government banned the importation into the United States of any oil from Libya and severely restricted exports from the United States to Libya. 47 Fed.Reg. 10,507 (1982); 47 Fed.Reg. 11,247 (1982). Export regulations issued by the U.S. Department of Commerce required a license for the export of most goods, including all technical information. Because it "had planned to export substantial quantities of technical data and oil technology to Libya in connection with the exploration program," Sun Oil claims that it filed for such an export license "so as to be prepared to resume operations in Libya promptly in the event the U.S. Government lifted the passport prohibition." (D.I. 12 at 7.) The application for a license was denied. (Id.) Thereafter, in late June of 1982, Sun Oil notified NOC that it was claiming the export regulations as an additional event of force majeure. (See D.I. 3 at 4; D.I. 12 at 7-8.)

On July 19, 1982, NOC filed a request for arbitration with the Court of Arbitration of the International Chamber of Commerce ("the ICC") in Paris, France, pursuant to the arbitration provision contained in the EPSA.⁴ (D.I. 3 at 4.) The members of the arbitration panel ("the Arbitral Tribunal") were chosen in accordance with the arbitration clause. Each party picked one arbitrator; the third was chosen by the International Chamber of Commerce. Sun Oil selected Edmund Muskie, a former United States Senator and Secretary of State. NOC selected Professor Hein Kotz, Director of the Max Planck Institut in West Germany. Robert Schmelck, a former chief justice of France's supreme court (la Cour de Cassation), was selected as the third arbitrator by the ICC Court of Arbitration.

The arbitration proceedings were held in Paris, France. In May and June of 1984, the Arbitral Tribunal held hearings on the issue of force majeure. It issued an initial award on May 31, 1985, that stated there had been no force majeure within the meaning of the EPSA. (D.I. 3, Exhibit B, First Award at 67.) The Arbitral Tribunal later held further hearings, and on February 23, 1987, it rendered a second and final award in favor of NOC and against Sun Oil in the amount of twenty million U.S. dollars. (See D.I. 3, Exhibit C, Final Award.) NOC has since been unable to collect payment from Sun Oil. (See D.I. 3 at 6.)

NOC filed this petition for confirmation of the Tribunal's award on July 24, 1989. (D.I. 3.) On September 15, 1989, Sun Oil moved to dismiss the petition. (D.I. 11.) The Court heard oral argument on November 29, 1989 and January 26, 1990.

THE MOTION TO DISMISS

Sun Oil makes numerous arguments regarding why NOC's petition for recognition of this arbitral award should be dismissed. For the reasons stated below, the Court will deny Sun Oil's motion.

I. Recognition As Prerequisite For Access To U.S. Courts

In support of its motion to dismiss NOC's petition, Sun Oil first advances the argument that NOC, as an arm of the Libyan Government, is not entitled to access to U.S. courts because of the status of U.S.-Libyan relations. NOC counters that it is an entity owned by a foreign government which is recognized by the U.S., and is thus entitled to access to our courts regardless of the present state of diplomatic relations between the U.S. and Libya. The Court agrees with NOC that it should not be barred from U.S. courts merely because of poor U.S.-Libyan relations.

In Guaranty Trust Co. v. United States, 304 U.S. 126, 137, 58 S.Ct. 785, 791, 82 L.Ed. 1224 (1938), the Supreme Court affirmed the "generally accepted principle" that suit on behalf of a sovereign state "may be maintained in our courts only by that government which has been recognized by the political department of our own government as the authorized government of the foreign state." Later, in its landmark Sabbatino decision, the Court interpreted this rule to mean that an instrumentality of the unfriendly but recognized Castro government in Cuba was entitled to access to U.S. courts. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 412, 84 S.Ct. 923, 931, 11 L.Ed.2d 804 (1964). Although it noted that diplomatic relations between the U.S. and Cuba had been severed, and the U.S. had imposed a commercial embargo against Cuba and frozen Cuban assets, the Court nevertheless concluded that it was "constrained to consider any relationship, short of war, with a recognized sovereign power as embracing the privilege of resorting to United States courts." Id. at 410, 84 S.Ct. at 931 (emphasis added).

The Sabbatino Court underscored the important point that recognition and the existence of diplomatic relations are not synonymous. See id. at 409 n. 10, 410, 84 S.Ct. at 930 n. 10, 931. While diplomatic relations may be severed "for any number of political reasons," such an act "does not approach that expression of animosity implicit in a declaration of war." Id. at 410, 84 S.Ct. at 931; see also 1 Restatement (Third) of the Foreign Relations Law of the United States § 203, comment d (1987) ("Recognition of a government is often effected by sending and receiving diplomatic representatives, but one government may recognize another yet refrain from assuming diplomatic relations with it. Similarly, breaking off relations does not constitute derecognition of the government.").

The Supreme Court more recently reaffirmed, in dictum, its adherence to this recognition-access principle. "It has long been established," stated the Court, "that only governments recognized by the United States and at peace with us are entitled to access to our courts...." Pfizer Inc. v. Government of India, 434 U.S. 308, 319-20, 98 S.Ct. 584, 591, 54 L.Ed.2d 563 (1978) (emphasis added). In sum, under existing case law it is clear that NOC should not be barred from this Court unless the United States either does not recognize the Qadhafi Government, or is at war with Libya.

Significantly, Sun Oil does not argue that the Libyan Government is not recognized by the United States. Instead, Sun Oil argues that "the `outlaw regime' of Libya's Mu'ammar Qadhafi is precisely the type of regime at which these access-limiting rules are aimed." (D.I. 12 at 17 emphasis added.) Sun Oil further argues that the appropriate inquiry, for determining whether a foreign government should be denied access to U.S. courts based on foreign policy concerns, is no longer whether a government is "recognized." Id. at n. 17. Apparently, the United States traditionally "regarded recognition as a political weapon, not as something to be granted as a matter of international obligation. Its granting or refusal was discretionary and...