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Mesa Power Group, LLC v. Government of Canada

United States District Court, District of Columbia

June 15, 2017



          JOHN D. BATES United States District Judge.

         This is a dispute over enforcement of an arbitration award. Mesa Power Group, LLC (“Mesa”), an energy company, believes that the government of Canada violated the North American Free Trade Agreement in how it awarded various renewable energy contracts in Ontario. An arbitration panel disagreed. Mesa now petitions this Court to vacate that award; Canada counter-petitions for enforcement of the award. Given a federal court's narrow power to review the substance of arbitration awards, the Court will deny Mesa's petition to vacate and grant Canada's counter-petition to enforce the award. Canada also argues that Mesa's petition is frivolous and in bad faith, and therefore requests that this Court award it attorney's fees. The Court will deny that request.


         In 2009, the government of the Canadian province of Ontario launched a program designed to encourage renewable energy, known as the Feed-in-Tariff (FIT) program. Mesa Power Grp., LLC v. Gov't of Canada, Case No. 2012-17, Final Award, ¶ 13 (Perm. Ct. Arb., March 24, 2016), Ex. 1 to Resp.'s Br. [ECF No. 22-2] (hereinafter “Award”). Mesa is an energy company that made significant investment in the production of renewable energy in the region with the hope of being awarded a contract through the FIT program. Pet.'s Br. [ECF No. 1-1] at 5. After Ontario announced the FIT program, it entered into a separate contract, outside of the FIT program, to provide renewable energy to the same electrical grid. Award ¶¶ 38-39. This contract, the Green Energy Investment Agreement (GEIA) was with two Korean companies known as the Korean Consortium. Id.

         Mesa believes that when Ontario announced the FIT program, it pledged to award all of the electric grid capacity through FIT, and that Ontario's decision to enter the GEIA reneged on this pledge. Pet.'s Br. at 5-6. Mesa also believes that the GEIA contained fewer requirements of investors than the FIT program did. Id. Mesa contends that these unfair practices amount to a violation of NAFTA, which, broadly speaking, requires signatory nations to treat investors fairly. Id. at 6-9.

         Mesa asserted these claims through arbitration, as provided for in NAFTA Article 1116, in October of 2011. Award ¶ 207; North American Free Trade Agreement, Can.-Mex.-U.S., art. 1116, Dec. 17, 1992, 32 I.L.M. 605, 640 (1993) (“NAFTA”). Specifically, Mesa argued that Canada violated several articles of NAFTA Chapter 11. See Award ¶ 208. First and foremost, Mesa claimed that Canada violated Article 1105(1)'s requirement that signatory nations treat investors from another signatory nation “in accordance with international law, including fair and equitable treatment.” NAFTA Art. 1105(1); Award ¶ 208. Mesa also claimed that Canada improperly imposed domestic content requirements in violation of Article 1106, and that Canada treated other investors more favorably in violation of Articles 1102 and 1103. Award ¶ 208.

         NAFTA provides that arbitration proceedings are governed by NAFTA itself and the 1976 rules of the United Nations Commission on International Trade Law (UNCITRAL Rules). See NAFTA Art. 1120(2). A tribunal of three arbitrators was duly constituted pursuant to these rules. It reviewed extensive briefing, received factual and expert evidence, and held an oral hearing on October 26-31, 2014. Award ¶¶ 43-180 (evidence), ¶ 181 (oral hearing). The tribunal also received post-hearing briefs, id. ¶ 186, and briefs from the governments of the United States and Mexico, id. ¶¶ 192-204.

         On March 24, 2016, the tribunal issued its award. It determined that the FIT program was “procurement” by a government (namely, Canada) as defined by Article 1108, and therefore the requirements of Articles 1102, 1103, and 1106 did not apply. Id. ¶ 465 (“The Tribunal holds that the FIT program constitutes procurement by the Government of Ontario . . . .”); see also id. ¶¶ 403-466 (providing analysis); ¶ 335 (regarding Mesa's claim under Article 1106). The tribunal therefore did not consider Mesa's claims under those articles. It did consider Mesa's Article 1105 claim, however, and ultimately determined that Canada did not violate that provision. Id. ¶ 682. It also determined that Canada did not enter into the GEIA agreement in secret, or after promising to award all of the grid capacity through FIT. Id. ¶ 582. The tribunal in fact found that Mesa was aware that the Korean Consortium had the right to reserve a certain amount of the grid capacity before Mesa made any investments in the region. Id. The tribunal, after finding for Canada on all claims, awarded the costs and fees of arbitration to Canada. Specifically, it ordered payment of CAD 1, 116, 000 for the cost of arbitration, and CAD 1, 832, 701, representing 30% of Canada's costs of engaging in arbitration. Id. ¶ 706.

         One arbitrator, Judge Charles N. Brower, concurred in part and dissented in part. Award (Brower, J., concurring in part and dissenting in part), Ex. 2 to Pet.'s Br. [ECF No. 1-3]. With respect to Article 1105, he agreed that the tribunal stated the proper standard, but would have applied it differently. Id. ¶ 3. Specifically, he would have found that Canada violated Article 1105 by treating the Korean Consortium more favorably than the applicants to the FIT program, and by awarding some of the grid capacity through GEIA rather than the FIT program. Id. ¶¶ 4-24. In particular, Brower would have held that Canada's decision-making regarding the Korean Consortium crossed over from the realm of reasonable policy choices into unfair treatment in violation of Article 1105. Id. ¶ 17. Brower also would have held that the FIT program is not “procurement” as defined by Article 1108. Id. ¶¶ 25-34.

         Mesa now asks this court to vacate the award pursuant to § 10 of the Federal Arbitration Act (FAA), 9 U.S.C. § 10. Specifically, Mesa contends that vacatur is proper because the arbitrators “exceeded their powers” as defined by § 10(a)(4) and were “guilty of misconduct . . . or . . . misbehavior by which the rights of [Mesa were] prejudiced” as defined by § 10(a)(3). It also argues that the tribunal acted “in manifest disregard of the law, ” which the D.C. Circuit has recognized as a valid ground for vacating an arbitral award. See LaPrade v. Kidder, Peabody & Co., Inc., 246 F.3d 702, 706 (D.C. Cir. 2001) (internal quotation marks omitted). Mesa identifies two of the tribunal's actions that it believes violate these provisions. First, Mesa asserts that the tribunal's interpretation of the term “procurement” in Article 1108 was such a departure from the text of NAFTA that it justifies vacatur. Second, Mesa contends that the tribunal improperly granted “deference” to Canada's decision-making regarding the FIT program and entering the GEIA contract such that the proceedings were inappropriately biased, justifying vacatur.

         The Court reviewed full briefing from the parties and held an oral argument on June 1, 2017.

         CHOICE OF LAW

         There is a preliminary issue regarding the controlling choice of law. Canada asserts that the precedent of the Eleventh Circuit, rather than the D.C. Circuit, controls, because the seat of this arbitration was Miami, Florida. If Eleventh Circuit decisions control, then the legal standard is much more favorable to Canada: under Eleventh Circuit precedent the grounds for vacating an award enumerated in § 10 of the FAA are not applicable to a foreign arbitral award (like this one), nor is the additional grounds of “manifest disregard of the law” available. See Resp.'s Br. [ECF No. 22] at 14-15 (citing Indus. Risk Ins. v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998)).

         Canada's argument relies on Article V(1)(e) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which, as the name suggests, governs enforcement of arbitral awards issued in foreign proceedings, and is incorporated in the Federal Arbitration Act. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958 (“Convention”), 21 U.S.T. 2517, codified at 9 U.S.C. §§ 201-08. Article V(1)(e) of the Convention states that a court may vacate an award if it “has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.” “The phrase ‘under the law of which' in Article V(1)(e) . . . refers to the procedural law governing the arbitration, not the substantive law governing the Agreement.” Belize Soc. Dev. Ltd. v. Gov't of Belize, 668 F.3d 724, 727 (D.C. Cir. 2012). Thus, because the parties agree that the seat of the arbitration was in Florida-which is within the Eleventh Circuit-Canada argues that the procedural law of the Eleventh Circuit controls.

         But this position contradicts the weight of the decisions that have considered similar issues. Neither party has provided the Court with any cases discussing which circuit's precedent governs confirmation (or vacatur) of an arbitral award when the arbitration took place in one circuit and the case is filed in a different circuit. However, there is extensive case law and legal commentary regarding which circuit's precedent applies when a federal question case is transferred from one circuit to another: the law of the transferee court (here, the D.C. Circuit) rather than the transferor court (here, the Eleventh Circuit) governs. This is true in the context of transfers for the parties' convenience under 28 U.S.C. § 1404, transfers to obtain proper venue under § 1406, and transfers for multi-district litigation under § 1407. See Lafferty v. St. Riel, 495 F.3d 72, 83 (3d Cir. 2007) (transfer under § 1406); Hartline v. Sheet Metal Workers' Nat. Pension Fund, 286 F.3d 598, 599 (D.C. Cir. 2002) (per curiam) (transfer under § 1404); In re Korean Air Lines Disaster, 829 F.2d 1171, 1176 (D.C. Cir. 1987) (transfer under § 1407); see generally Charles A. Wright & Arthur R. Miller, 15 Fed. Prac. & Proc. § 3846 (4th ed.) (citing, inter alia, cases from the First, Second, Ninth and Eleventh Circuits reaching similar conclusions); see also Int'l Union of Painters & Allied Trades, Local Unions No. 970 & 1144, AFL-CIO v. NLRB, 309 F.3d 1, 6 (D.C. Cir. 2002) (“To the extent that [plaintiff] asks us to create special circuit law depending on the geographic origins of a case, it asks us . . . to abandon the federal circuits' normal task of trying to determine federal law as correctly as possible.”).

         This rule-that the transferee court's interpretation of federal law controls-makes sense given the nature of federal law. While there are “differences between different states' laws, ” there is “unitary federal law” and “each [federal court] has an obligation to engage independently in reasoned analysis” interpreting that law. In re Korean Air Lines Disaster, 829 F.2d at 1175-76. When a federal court interprets federal law, “[b]inding precedent for all is set only by the Supreme Court, and for the district courts within a circuit, only by the court of appeals for that circuit.” Id. at 1176; see also Richard L. Marcus, Conflict Among Circuits and Transfers within the Federal Judicial System, 93 Yale L.J. 677, 721 (1984)). This is in contrast to when a federal court sits in diversity jurisdiction, where there are reasons based on comity and federalism for the substantive law of the transferor jurisdiction-that is, the state law of the transferor jurisdiction-to apply. See Van Dusen v. Barrack, 376 U.S. 612, 637-42 (1964).[1] But when a court has federal question jurisdiction, these rationales do not apply. See In re Korean Air Lines Disaster, 829 F.2d at 1176. The only exception to this general rule-one that is not applicable here-is if the transferor court already decided an issue (based on its own interpretation of the law) and thus the “law of the case” governs that issue even in the transferee court. See Hill v. Henderson, 195 F.3d 671, 678 (D.C. Cir. 1999).

         Here, the case was not transferred under §§ 1404, 1406, or 1407-indeed, it was not transferred at all. Rather, the arbitration took place within the Eleventh Circuit but the petition was filed in this Circuit. Still, the same reasoning likely applies: there is one federal law, and this Court has an obligation to interpret the law “as correctly as possible.” That might be why, during oral argument, counsel for the respondent could not identify a single case in which a district court applied an interpretation of federal law from another circuit that contradicted the precedent of the circuit where the district court was located. Interpreting the law “as correctly as possible” requires interpreting the law within the bounds of controlling precedent-which in this district, means D.C. Circuit and Supreme Court precedent.

         However, the Court need not actually decide this issue. Even under D.C. Circuit precedent-which is more favorable to Mesa and which Mesa believes should apply-Mesa's arguments still fail. Thus, the Court will assume, without deciding, that ...

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