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Stati v. Republic of Kazakhstan

United States District Court, District of Columbia

March 23, 2018

ANATOLIE STATI; GABRIEL STATI; ASCOM GROUP, S.A.; TERRA RAF TRANS TRAIDING LTD., Petitioners,
v.
REPUBLIC OF KAZAKHSTAN, Respondent.

          MEMORANDUM OPINION

          AMY BERMAN JACKSON UNITED STATES DISTRICT JUDGE

         Petitioners, Anatolie Stati, Gabriel Stati, Ascom Group, S.A., and Terra Raf Trans Traiding Ltd. (“Stati parties”)[1] have brought this action to enforce an international arbitration award against the respondent, the Republic of Kazakhstan (“Kazakhstan”), in the United States. The matter is fully briefed and ripe for decision, but before the Court can turn to the merits of the dispute, it must address respondent's motion for reconsideration of the Court's May 11, 2016, Order denying respondent's motion for leave to submit additional defense grounds in opposition to the motion to confirm the arbitral award. For the reasons that follow, the Court will deny respondent's motion and it will confirm the award.[2]

         BACKGROUND

         A. Factual Background

         Petitioners have been involved in the oil and gas business in Kazakhstan for approximately 17 years. Between 1999 and 2000, petitioners purchased controlling shares in two Kazakh companies, Kazpolmunay LLP (“KPM”) and Tolkynneftagaz LLP (“TNG”). Pet. ¶¶ 28-30. The companies owned the subsoil use rights to the Borankol oil field, the Tolkyn gas field, and the Tabyl exploration block in Kazakhstan. Id. ¶¶ 29-30. Petitioners eventually came to own 100% of KPM and TNG, and in 2000, those companies obtained approval from Kazakhstan to explore and develop various oil and gas fields located in the country. Id. ¶ 31; Arb. Award [Dkt. # 2-1, 2-2, 2-3, 2-4] (“Award”) ¶ 229. A year later, in 2001, petitioners, through KPM and TNG, invested more than one billion dollars in the development of the Borankol and Tolkyn fields, and the Tabyl Block. Pet. ¶ 32.

         In 2008, Kazakhstan began a government investigation of Anatolie Stati and his companies, including his compliance with export tax laws. Award ¶¶ 296-99. Petitioners and respondent disagree on what followed. According to petitioners, the government of Kazakhstan began to intimidate and harass petitioners into selling their investments to the state-owned company KazMunaiGas at a substantial discount. Pet. ¶ 33. Specifically, petitioners claim that Kazakhstan “baselessly” accused petitioners of fraud and forgery, levied more than $70 million dollars in back taxes, arrested KPM's general manager for “illegal entrepreneurial activity, ” and ultimately seized all of KPM and TNG's assets. Id. And on July 21, 2010, Kazakhstan terminated petitioners' subsoil use contracts. Award ¶ 611.

         Kazakhstan's version of events is that the Kazakh Tax and Customs Committee properly assessed $62 million dollars in taxes to petitioners, and that a lawful criminal investigation by the Kazakh authorities led to the arrest and imprisonment of KPM's General Director. Award ¶¶ 394, 430, 440, 492. Respondent maintains that it was the investigation that led to the termination of KPM and TNG's subsoil use contracts on July 21, 2010, and it disputes the claim that Kazakhstan expropriated petitioners' assets. Id. ¶¶ 591-611. Instead, respondent takes the position that the Kazakh state oil company and its subsidiary placed petitioners' oil and gas fields into trust management on a temporary basis only. Id. ¶ 611.

         B. Procedural Background

         On July 26, 2010, petitioners filed a Request for Arbitration with the Stockholm Chamber of Commerce (“SCC”) in Sweden. Req. for Arb., Ex. C. to Decl. of Charlene C. Sun [Dkt. # 2-6] (“Req. for Arb.”). The request states:

Over the past two years, Kazakhstan has engaged in a campaign of harassment and illegal acts against [petitioners] that culminated on July 21, 2010 with the State's notice of unilateral termination of the companies' Subsoil Use Contracts, the illegal expropriation of [petitioners'] Kazakh investments, and the subsequent commandeering of [petitioners'] offices by personnel of State-owned KazMunaiGas and the Kazakh Ministry of Oil and Gas.

Id. ¶ 4. Petitioners further alleged that Kazakhstan's harassment “clearly had expropriation as its ultimate goal, and it had the effect in the process of destroying both the market value and alienability of [petitioners'] investments.” Id. ¶¶ 4, 8. The request invoked the Energy Charter Treaty (“ECT”), an international agreement signed by the respondent, which allows investors to submit disputes to the SCC for arbitration. Energy Charter Treaty, art. 26(4)(c), Dec. 17, 1994, 2080 U.N.T.S. 95, 121-22. Accordingly, the arbitral proceedings were governed by the SCC's Arbitration Rules. Pet. ¶ 22.

         On December 19, 2013, the SCC tribunal issued an award in favor of petitioners and against respondent. Pet. ¶ 27. The tribunal determined that Kazakhstan breached its obligation to provide fair and equitable treatment under Article 10(1) of the ECT. Award ¶¶ 1085-95. It awarded petitioners $497, 685, 101 for the alleged expropriation of petitioners' assets in Kazakhstan. Id. ¶ 1859. This total included $277.8 million for the Borankol and Tolkyn oil and gas fields, $31.3 million for the subsoil use contracts, $199 million for an unfinished liquefied petroleum gas plant (“LPG plant”), and $8, 975, 496.40 in legal costs. Id. ¶¶ 1856-61, 1885.[3]

         On September 30, 2014, petitioners asked this Court to confirm the arbitral award in the United States pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 201 et seq., which codifies the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 330 U.N.T.S. 38, commonly known as the “New York Convention.” Pet. ¶ 1. The Stati parties sought to enforce the foreign arbitral award here on the grounds that Kazakhstan maintains assets in the United States. Id. ¶ 46. Respondent opposed the petition to confirm based on five grounds under the New York Convention, focusing primarily on the SCC's appointment of respondent's arbitrator and its alleged failure to enforce the requirement that there be a three-month settlement period prior to the initiation of an arbitration. Resp't's Opp. to Pet. [Dkt. # 20] (“Resp't's Opp.”). Petitioners filed a reply, Pet'rs' Reply Mem. in Supp. of Pet. [Dkt. # 24] (“Pet'rs' Reply”), and the Court granted respondent leave to file a sur-reply. Resp't's Sur-Reply in Supp. of Resp't's Opp. [Dkt. # 28] (“Resp't's Sur-Reply”). By May 26, 2015, the parties had completed briefing on the merits.

         1. Respondent's motion for leave to include additional defense grounds.

         According to respondent, in June of 2015, it became aware of “new evidence” that petitioners had “obtained the [arbitral] [a]ward through fraud.” Resp't's Mot. for Leave to Submit Additional Grounds in Supp. of Opp. to Pet. [Dkt. # 32] (“Initial Mot.”) at 4, 6. Respondent waited till April 5, 2016, though - nearly a year after learning about the alleged fraud and completing the merits briefing in this case - to file a motion seeking leave to submit additional defenses to enforcement of the arbitral award. Id. at 1, 4.

         In that motion, respondent argued that petitioners procured the award through fraud by submitting “false testimony and evidence to the SCC Arbitration tribunal” that “materially misrepresented the LPG Plant construction costs for which they claimed reimbursement in the [arbitration].” Id. at 4. Respondent contended that the newly discovered fraud afforded it two additional defenses under Article V(2)(b) and Article V(1)(b) of the New York Convention. Id. at 4-6. Under Article V(2)(b) the Court could refuse recognition of the award because enforcement of a fraudulently obtained arbitral award would be contrary to United States public policy. Id. at 4-5. And respondent also asserted that “the intentional giving of false evidence” during the arbitration “denied [respondent] the opportunity to present its case, ” thus rendering the arbitral award unenforceable under Article V(1)(b) of the New York Convention. Id. at 5-6.

         In the absence of an applicable rule setting forth the standard to be applied to respondent's motion, the Court considered whether justice required permitting respondent to “add new grounds to its opposition to the petition to confirm the award, more than a year after the original opposition was filed.” Order (May 11, 2016) [Dkt. # 36] at 2-3 (“Order”). The Court reviewed the SCC arbitration award and denied the motion, reasoning that “it [would] not be in the interest of justice to conduct a mini-trial on the issue of fraud here when the arbitrators expressly disavowed any reliance on the allegedly fraudulent material.” Id. at 4. In other words, the evidence respondent sought to discredit was not material to the decision.

         The Court derived this conclusion based on its own detailed review of the award, which stated in relevant part:

Regarding the value of damages caused by Respondent's action, the Tribunal has taken note of the various extensive arguments submitted by the Parties relying on their respective experts' reports. However, the Tribunal considers that it does not have to evaluate these reports and the very different results they reach. In the view of the Tribunal, the relatively best source for the valuation . . . are the contemporaneous bids that were made for the LPG Plant by third parties after Claimants' efforts to sell the LPG Plant . . . .

Award ¶ 1746. The panel concluded:

[T]he Tribunal considers it to be of particular relevance that an offer was made for the LPG Plant by state-owned KMG at that time for USD 199 million. The Tribunal considers that to be the relatively best source of information for the valuation of the LPG Plant among the various sources of information submitted by the Parties regarding the valuation for the LPG Plant during the relevant period . . . . Therefore, this is the amount of damages the Tribunal accepts in this context.

Id. ¶¶ 1747-48.

         Kazakhstan then filed the instant motion for reconsideration, Resp't's Mot. for Recons. of May 11, 2016, Order [Dkt. # 37] (“Mot. for Recons.”), and petitioners opposed the motion. Pet'rs' Mem. of P. & A. in Opp. to Resp't's Mot. for Recons. [Dkt. # 38] (“Pet'rs' Opp.”). Petitioners pointed out that Kazakhstan “has the opportunity to litigate the very same fraud allegations in the courts of Sweden, which is the seat of the arbitration and primary jurisdiction in this case.” Id. at 5. Respondent confirmed that the parties were litigating the fraud issue in Sweden, where it was seeking to vacate the award, but it argued that the Swedish proceeding should not affect the Court's review of the petition to confirm, or the motion for reconsideration. See Reply in Supp. of Mot. for Recons. [Dkt. # 39] at 3-5.

         2. The Swedish proceedings to vacate the arbitral award.

         In light of the pendency of the Swedish proceedings to vacate the award, this Court exercised its discretion to stay this case pending the resolution of the proceedings before the Svea Court of Appeal in Sweden, noting that they “could have a dramatic impact on the petition to confirm the arbitration award.” Stati, 199 F.Supp.3d at 193. It observed that if “respondent [was] successful in the set-aside proceeding [in Sweden], confirmation of the award [would] be unlikely” in the United States. Id., citing New York Convention, art. V(1)(e) (providing that enforcement of an award may be refused when the “award . . . has been set aside . . . by a competent authority of the country in which, or under the law of which, that award was made”). In that same ruling, the Court found that it had subject matter jurisdiction over the dispute under the FAA and the Foreign Sovereign Immunities Act. Id. at 184-190.

         On December 9, 2016, the Svea Court of Appeal issued its decision upholding the Award and rejecting Kazakhstan's arguments, including the argument that the Award should be vacated in light of the alleged fraud. Svea Court of Appeal J., Exs. 1-3 to Joint Report (Dec. 30, 2016) [Dkt. # 45-1, 45-2, 45-3] § 5.3.1 (“Svea Court of Appeal Opinion”). Kazakhstan presented at least two theories of fraud before the Svea Court of Appeal. First, it argued, much as it had before this Court, that the Stati parties had submitted false evidence on the value of the LPG plant in the form of sworn testimony and expert reports during the arbitration. Id. § 3.1.2.1. Second, respondent argued that the award was tainted by fraud that took place prior to the start of the arbitration. Id. It alleged that representatives for the Stati parties presented financial statements that falsely inflated the amounts invested in the LPG plant to a third-party company, KMG, and that KMG was fraudulently induced into bidding $199 million for the LPG plant. Id. According to respondent, since it was the KMG bid that was used by the tribunal to value the LPG plant, the arbitral award was procured by fraud. Id.

         Following a review of the full record, the Svea Court of Appeal rejected all of Kazakhstan's contentions. First, it concluded that “[s]ince the arbitral tribunal based its assessment [of the LPG plant] on the indicative bid” and not the allegedly false “witness testimony, witness affidavits, and expert reports” submitted by the Stati parties during the arbitration, this evidence did not have “immediate importance for the outcome.” Svea Court of Appeal J., Ex. 3 to Joint Report (Dec. 30, 2016) [Dkt. # 45-3] at 45.[4] The Svea Court of Appeal recited the legal principle that “there can be no question of declaring an arbitral award invalid solely on the ground that false evidence or untrue testimony has occurred, when it is not clear that such have been directly decisive for the outcome.” Id. Since “even if [the evidence] were proven to be false, ” it would not have changed the outcome of the arbitration, the court deemed it insufficient to invalidate the award. Id.

         Second, the Svea Court of Appeal concluded that because the KMG indicative bid was made “prior to the initiation of the arbitration, ” the bid did not constitute “per se” false evidence, even if “possibly incorrect information regarding the amount invested in the LPG plant was among the factors that KMG took into account when calculating the size of its offer.” Id. at 46. It concluded that the allegedly false financial statements “did not directly constitute any basis for the arbitral tribunal's assessment of the value of the LPG plant.” Id. In other words, any alleged dishonesty in business transactions that preceded the arbitration proceedings did not constitute a fraud on the tribunal and was too remote to warrant annulment of the award.

         Kazakhstan then challenged the decision in the Swedish Supreme Court, arguing that the Svea Court of Appeal committed “grave procedural error” when it issued its decision. Ex. B. to Decl. of Alexander Foerster [Dkt. # 46-2] ¶ 3. This Court continued its stay pending the resolution of that proceeding, Min. Order (Apr. 3, 2017); Min. Order (Aug. 15, 2017), and petitioners moved to lift the stay on September 29, 2017. Pet'rs' Mot. to Lift Stay [Dkt. # 60]. Before this Court ruled on that motion, the Swedish Supreme Court ruled in favor of the Stati parties on October 24, 2017. Pet'rs' Suppl. Status Report Concerning Status of Proceedings in Sweden [Dkt. # 64]. This marked the end of Kazakhstan's efforts to set aside the arbitral award in the jurisdiction with the sole authority to vacate the arbitral award.

         Since the Swedish award was now final and binding, the Court granted petitioners' motion to lift the stay on November 6, 2017, and it invited the parties to file supplemental briefs discussing what impact, if any, the decisions by the Swedish authorities should have on the resolution of Kazakhstan's pending motion for reconsideration of the Court's May 11, 2016, Order denying respondent's request to introduce additional defense grounds based upon its fraud allegations. Min. Order (Nov. 6, 2017).

         Kazakhstan argued that the decisions by the Svea Court of Appeal and the Swedish Supreme Court based on Swedish law should have no impact on the issue presented in its motion for reconsideration because “neither of these decisions made factual findings regarding the merits of Kazakhstan's fraud allegations, nor did they apply the New York Convention, ” as this Court is required to do. Kazakhstan's Resp. to Nov. 6, 2017, Min. Order [Dkt. # 65] (“Resp't's Resp. to Nov. 6 Min. Order”). Meanwhile, petitioners emphasized that respondent presented its “fraud case in full” to the Svea Court of Appeal, the seat of the arbitral award, which concluded “[t]hat the Award was not the product of fraud, ” and its ruling was left undisturbed by the Swedish Supreme Court. Pet'rs' Suppl. Submission in Opp. to Mot. for Recons. [Dkt. # 66] at 1-2. Petitioners also argued that the Court should deny respondent's motion based on the principles of preclusion and comity, id. at 3-10, and respondent argued in a sur-reply that the principles of preclusion and comity are inapplicable. Kazakhstan's Resp. to Pet'rs' Suppl. Submission in Opp. to Mot. for Recons. [Dkt. # 68] at 25.

         I.THE MOTION FOR RECONSIDERATION

         STANDARD OF REVIEW

         The Court evaluates respondent's motion for reconsideration under Rule 54(b) of the Federal Rules of Civil Procedure, which governs reconsideration of non-final decisions. The rule states that “any order . . . that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties . . . may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.” Fed.R.Civ.P. 54(b). The Court may grant relief under Rule 54(b) “as justice requires.” Capitol Sprinkler Inspection, Inc. v. Guest Servs., Inc., 630 F.3d 217, 227 (D.C. Cir. 2011) (internal citations omitted); see also Parker v. John Moriarty & Assocs., 221 F.Supp.3d 1, 2 (D.D.C. 2016). While this standard “affords considerable discretion to the district courts, ” Bldg. Indus. Ass'n of Superior Cal. v. Babbitt, 161 F.3d 740, 743 (D.C. Cir. 1998), it is limited by the principle that once the parties have “battled for the court's decision, they should neither be required, nor without good reason permitted, to battle for it again.” Wannall v. Honeywell Int'l, Inc., 292 F.R.D. 26, 30-31 (D.D.C. 2013), quoting Elec. Privacy Info. Ctr. v. U.S. Dep't of Homeland Sec., 811 F.Supp.2d 216, 224 (D.D.C. 2011). “In this Circuit, it is well-established that ‘motions for reconsideration, ' whatever their procedural basis, cannot be used as ‘an opportunity to reargue facts and theories upon which a court has already ruled, nor as a vehicle for presenting theories or arguments that could have been advanced earlier.'” Loumiet v. United States, 65 F.Supp.3d 19, 24 (D.D.C. 2014), quoting Estate of Gaither ex rel. Gaither v. Dist. of Columbia, 771 F.Supp.2d 5, 10 (D.D.C. 2011).

         The “as justice requires” standard under Rule 54(b) involves concrete considerations of whether the court “has patently misunderstood a party, has made a decision outside the adversarial issues presented to the [c]ourt by the parties, has made an error not of reasoning, but of apprehension, or where a controlling or significant change in the law or facts [has occurred] since the submission of the issue to the [c]ourt.” Cobell v. Norton, 224 F.R.D. 266, 272 (D.D.C. 2004) (internal citations omitted). Other courts in this district have read the standard to require that the court grant a motion for reconsideration “only when the movant demonstrates: (1) an intervening change in the law; (2) the discovery of new evidence not previously available; or (3) a clear error in the first order.” Stewart v. Panetta, 826 F.Supp.2d 176, 177 (D.D.C. 2011), quoting Zeigler v. Potter, 555 F.Supp.2d 126, 129 (D.D.C. 2008).

         Here, respondent does not point to a change in the law. Nor does it argue that it discovered new evidence after it had already filed its motion. It simply repeats arguments made unsuccessfully before and couples them with arguments it chose not to raise at that time, and it suggests that the Court's ruling was erroneous. But none of the reasons advanced at this time requires a change in the outcome.

         ANALYSIS

         Respondent argues first that the Court's conclusion that the “arbitrators did not rely upon” the alleged fraud is “factually incorrect.” Mot. for Recons. at 1. Second, it maintains that the Court applied the wrong legal standard when it interpreted respondent's public policy defense under Article V(2)(b) of the New York Convention. Id. at 10-11. And third, it contends that the May 11, 2016, Order failed to consider its alternate defense under Article V(1)(b) of the New York Convention. Id. at 11-12.

         A. The Court did not err as a matter of fact.

         The Court did not err as a matter of fact in its May 11, 2016, Order for the simple reason that respondent did not present the facts it now seeks to introduce in its motion for reconsideration. And because respondent does not claim that these facts were not available to it at the time it filed its initial motion to include additional defenses, they are improperly raised now. Furthermore, the Court did not err in evaluating the facts ...


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