United States District Court, D. Columbia.
For DRC, INC., Petitioner: Kenneth B. Reisenfeld, LEAD ATTORNEY, Thomas Michael Guiffre, PATTON BOGGS, LLP, Washington, DC; Amer S Pharaon, PRO HAC VICE, PATTON BOGGS LLP, Newark, NJ.
For UNITED STATES OF AMERICA, Interested Party: Laurie J. Weinstein, U.S. ATTORNEY'S OFFICE, Washington, DC.
For REPUBLIC OF HONDURAS, Respondent: Creighton R. Magid, LEAD ATTORNEY, DORSEY & WHITNEY LLP, Washington, DC; Juan C. Basombrio, PRO HAC VICE, DORSEY & WHITNEY LLP, Costa Mesa, CA.
PAUL L. FRIEDMAN, United States District Judge.
This is an action to enforce an arbitration award rendered in the Republic of Honduras by Honduran arbitrators under Honduran law. The underlying dispute arose out of a construction contract between petitioner, DRC, Inc. (" DRC" ), and the Fondo Hondureño de Inversión Social (" FHIS" )-- a sub-entity of respondent, the Republic of Honduras (" the Republic" )-- under which DRC agreed to construct certain water and wastewater sub-projects in Honduras, following the devastation wrought by Hurricane Mitch in 1998. DRC demanded arbitration with FHIS, and, after approximately twenty-four days of arbitration proceedings, an award was rendered against FHIS that required FHIS to pay DRC over $51 million. In this confirmation action, DRC seeks to enforce the arbitral award against the Republic of Honduras itself, rather than against FHIS, the award debtor.
This dispute has given rise to four lawsuits besides this one, affecting the pathway that the present litigation has followed. Two are suits brought by DRC against the United States government -- which funded the recovery work done in Honduras -- in the Court of Federal Claims, and a third is a False Claims Act case brought by the United States against DRC in this Court. The fourth lawsuit was an action initiated by DRC before a panel of the Supreme Court of Honduras, in which DRC sought confirmation of the award against FHIS. Those proceedings reached their endpoint in August of 2013, when the Supreme Court of Honduras denied DRC's confirmation effort. During a portion of the pendency of the Honduran action, this Court stayed this case. Since that stay was lifted in June of 2012, the parties have engaged in two rounds of supplemental briefing, most recently with respect to the potential impact of the Honduran judgment on the disposition of DRC's petition to confirm.
Currently pending before the Court are four motions: (1) the Republic's motion to dismiss DRC's petition to confirm the arbitral award; (2) the Republic's motion to bifurcate consideration of jurisdictional issues from consideration of merits issues; (3) the Republic's motion to dismiss the petition with prejudice because of DRC's alleged severe litigation misconduct; and (4) DRC's motion to strike materials submitted by the Republic in support of its motion to dismiss for litigation misconduct.
The Republic also has filed a " preliminary response" to DRC's petition, in which it sets forth further grounds for dismissal of the petition that are not presented in its initial motion to dismiss. And the Republic advances yet more arguments for dismissal in the supplemental briefing filed subsequent to the issuance of the judgment of the Supreme Court of Honduras. The Court has carefully considered the parties' numerous submissions, the relevant legal authorities, and relevant portions of the record. It concludes that the Republic enjoys sovereign immunity from suit and that this Court therefore lacks subject matter jurisdiction over this action.
This Court has previously set forth the facts of this case in some detail. See DRC, Inc. v. Rep. of Honduras, 774 F.Supp.2d 66, 68-71 (D.D.C. 2011), order of stay vacated in 999 F.Supp.2d 1, 2012 WL 10057466 (D.D.C. 2012). It therefore will draw on its earlier exposition of these facts. Hurricane Mitch struck Central America in 1998 and caused tremendous destruction and dislocation. In response, the United States Agency for International Development (" USAID" ) funded reconstruction projects in various Central American countries, including Honduras. One such project was undertaken in collaboration with FHIS (in English, the " Honduran Social Investment Fund" ), a sub-entity of the Republic of Honduras. Funded by a Grant Agreement
executed between the Republic, represented by its Ministry of Finance, and USAID, this project involved the construction of certain water and wastewater sub-projects in Honduras. See Special Objective Grant Agreement Between the Republic of Honduras and the United States of America for Hurricane Reconstruction Program (" Grant Agreement" ) [Dkt. No. 24-1]. FHIS solicited bids for the project, and DRC was eventually selected as the contractor. DRC, Inc. v. Rep. of Honduras, 774 F.Supp.2d at 68.
FHIS and DRC entered into a construction contract on June 21, 2000. See DRC Pet., Farmer Aff. Ex. B, Reconstruction Program Construction Contract (" Construction Contract" ) [Dkt. No. 1-3]. The Construction Contract between FHIS and DRC required that all controversies and disputes be governed by the " Construction Contract Liability Clauses." Id. ¶ 26. These Clauses provided mechanisms for conflict resolution that included the submission of disputes to arbitration under the Rules of Conciliation and Arbitration of the International Chamber of Commerce or the Arbitration Rules of the United Nations Commission on International Trade Law. See DRC Pet., Farmer Aff. Ex. C, Mandatory Clauses, Construction Services Contracts ¶ 9(c) [Dkt. No. 1-3].
In early 2009, DRC demanded arbitration with FHIS. DRC, Inc. v. Rep. of Honduras, 774 F.Supp.2d at 70. DRC sought damages totaling over $86 million, arising out of purported breaches of the Construction Contract. Arbitration proceedings commenced and, as DRC describes it, " [t]he arbitral tribunal consisted of three Honduran attorneys," and the arbitration proceedings resulted " in approximately 24 hearing days during which [DRC and FHIS] presented approximately 29 witnesses including 10 expert witnesses, performed 7 site inspections in two countries, and introduced approximately 2,165 documents." Id. (quoting DRC Opp. to MTD at 8). The tribunal rendered the arbitral award on September 8, 2009. The award required FHIS to pay DRC a combined amount of $51,482,556.90. Id.
DRC filed its petition to confirm the arbitral award in this Court in 2010. By that time, however, four other lawsuits arising out of the same course of events already had been initiated in a variety of judicial fora. In June and July of 2004, DRC brought two suits against the United States in the Court of Federal Claims. The first of these suits relates directly to the Construction Contract at issue here, while the second suit relates to an assignment to USAID of a different contract between DRC and FHIS. DRC, Inc. v. Rep. of Honduras, 774 F.Supp.2d at 69. Then, in September of 2004, the United States filed a civil action in this Court, alleging that DRC had violated the False Claims Act (" FCA" ) in connection with its procurement and performance of the Construction Contract. Id. DRC filed a motion to dismiss the FCA action or, in the alternative, to transfer it to a different venue, but the Court denied both requests. United States v. DRC, Inc.,
Civil Action No. 04-1608, Dkt. No. 11, (D.D.C. Feb. 17, 2009) (Memorandum Order). DRC's subsequent motion for partial summary judgment in the FCA case was granted in part and denied in part. United States v. DRC, Inc., 856 F.Supp.2d 159 (D.D.C. 2012). Presently in that case, Judge Barbara Rothstein has set a schedule for the filing and briefing of dispositive motions, with a jury trial slated to begin on December 1, 2014. Due to the pendency and ongoing developments in the FCA case, the two actions in the Court of Federal Claims remain stayed. See DRC, Inc. v. United States, No. 04-940 C, (Fed. Cl. Aug. 11, 2014) (Order); DRC, Inc. v. United States, No. 04-1124 C, (Fed. Cl. Aug. 11, 2014) (Order).
In addition to these three suits brought in United States federal courts, in 2009 DRC filed an action in the Supreme Court of Honduras seeking confirmation of its arbitral award, and naming FHIS as the respondent. Because of the pendency of that case, this Court granted the Republic's motion to stay this action, and ordered the parties to file periodic updates regarding the status of the Honduran proceedings. DRC, Inc. v. Rep. of Honduras, 774 F.Supp.2d at 73-76. But after the D.C. Circuit's ruling in Belize Social Development Ltd. v. Government of Belize, 668 F.3d 724, 399 U.S.App.D.C. 179 (D.C. Cir. 2012), the Court determined that the indefinite stay could not be justified, and therefore vacated it. DRC, Inc. v. Rep. of Honduras, Civil Action No. 10-0003, 999 F.Supp.2d 1, 2012 WL 10057466, at *4 (D.D.C. June 11, 2012). In the same Order, the Court also adopted DRC's suggestion that the parties provide further briefing regarding the enforceability of the award against the Republic of Honduras itself, as well as concerning one other ancillary issue. 999 F.Supp.2d 1, Id. at *6. Shortly after the close of that round of supplemental briefing, the Supreme Court of Honduras issued its decision in the parallel confirmation proceeding brought by DRC against FHIS, in which that court denied DRC's confirmation petition. See Translated Judgment of Supreme Court of Honduras (" Honduran Judgment" ) [Dkt. No. 134-1]. The issuance of that ruling prompted another round of supplemental briefing here, concerning the impact of the Honduran judgment on DRC's petition in this Court to confirm the arbitral award against the Republic.
Before the Court now are several motions filed at an earlier stage of these proceedings -- prior to imposition of the stay-- as well as the arguments presented by both parties in the two rounds of supplemental briefing submitted following the lifting of the stay. The Republic, in its initial motion to dismiss DRC's petition, as well as in its " preliminary response" to the petition, advanced numerous grounds for dismissal, most of which remain at least potentially viable following the issuance of the Honduran judgment. Specifically, the Republic had asserted that this Court lacks subject matter jurisdiction over the confirmation action because the Republic enjoys sovereign immunity; that this action presents a non-justiciable political controversy; that the Court lacks personal jurisdiction over the Republic; that DRC has failed to name a necessary party, FHIS, as to which the Court lacks personal jurisdiction; and that the award is not enforceable based on numerous grounds
specified in the Inter-American Convention on International Commercial Arbitration. See generally Rep. MTD; Rep. Prelim. Resp. In addition to these various jurisdictional, procedural, and substantive arguments, the Republic also contended that dismissal of the petition is warranted due to DRC's alleged " severe litigation misconduct." See Rep. MTD for Litig. Misconduct. And the Republic further maintained that if this Court were to deny its assertion of sovereign immunity, judicial economy would be served by the Court's declining to address any other issues until the Republic is able to pursue an interlocutory appeal of the jurisdictional ruling. See Rep. Mot. to Bifurcate.
The Republic now argues that, in light of the ruling of the Supreme Court of Honduras -- which held that DRC could not enforce the award, based on that court's conclusion that the arbitral tribunal had not been validly constituted under Honduran law-- this Court need not address " the more complex foreign sovereign immunity issues" presented by the Republic in its earlier submissions seeking dismissal of the petition. Rep. Honduran Judg. Supp. at 12. But federal courts in this country, as courts of limited jurisdiction, " have an independent responsibility to ensure that they have subject matter jurisdiction before proceeding to the merits of a case." Carson v. U.S. MSPB, 534 F.Supp.2d 96, 97-98 (D.D.C. 2008) (citing Belhas v. Ya'alon, 515 F.3d 1279, 1282-83, 380 U.S.App.D.C. 56 (D.C. Cir. 2008)). The Court therefore must address at the outset the Republic's assertion of its sovereign immunity from suit. And as explained in the balance of this Opinion, the Court concludes that because the Republic was not itself a party to the arbitration agreement between DRC and FHIS, and as the arbitral award was issued solely against FHIS, a separate and independent entity, this Court lacks jurisdiction to entertain DRC's petition to confirm the award against the Republic.
A. Foreign Sovereign Immunities Act
The Foreign Sovereign Immunities Act (" FSIA" ) provides the sole basis for obtaining jurisdiction over a foreign state in federal court. Permanent Mission of India to the United Nations v. City of New York, 551 U.S. 193, 197, 127 S.Ct. 2352, 168 L.Ed.2d 85 (2007) (citing Argentine Rep. v. Amerada Hess Shipping Corp., 488 U.S. 428, 439, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989)). " A foreign state enjoys sovereign immunity under the [FSIA] 'unless an international agreement or one of several exceptions in the statute provides otherwise.'" Nemariam v. Fed. Dem. Rep. of Ethiopia, 491 F.3d 470, 474, 377 U.S.App.D.C. 79 (D.C. Cir. 2007) (quoting Peterson v. Royal Kingdom of Saudi Arabia, 416 F.3d 83, 86, 367 U.S.App.D.C. 421 (D.C. Cir. 2005)). " In the absence of an applicable exception, the foreign sovereign's immunity is complete --[t]he district court lacks subject matter jurisdiction over the plaintiff's case." Id. (internal quotation marks omitted) (alteration omitted, and alteration in original). The FSIA defines " foreign state" broadly, to include not only the sovereign and its political subdivisions, but also " agenc[ies] or instrumentalit[ies] of a foreign state." 28 U.S.C. § 1603(a).
DRC relies on the so-called " arbitration exception" to the FSIA, which provides for jurisdiction over efforts to confirm arbitral awards that fall within the scope of international instruments such as the Inter-American Convention on International Commercial Arbitration (the " Panama Convention" ). See 28 U.S.C. § 1605(a)(6)(B) (" A foreign state shall not be immune from the jurisdiction of courts of the United States . . . in any case . . . in which the action is brought [to enforce an arbitration ...