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LLC Komstroy v. Republic of Moldova

United States District Court, District of Columbia

August 23, 2019

LLC KOMSTROY, as successor in interest to LLC ENERGOALLIANCE, Petitioner,
v.
REPUBLIC OF MOLDOVA, Respondent.

          MEMORANDUM OPINION

          CHRISTOPHER R. COOPER UNITED STATES DISTRICT JUDGE

         Ukraine-based LLC Komstroy, as successor in interest to LLC Energoalliance, petitions this Court to confirm an arbitral award issued in the latter's favor and against the Republic of Moldova. The award stemmed from a dispute over a series of contracts from 1999 and 2000 to supply electric power to a Moldovan state-owned utility, with payments passing through a third party. After the utility defaulted, the third party transferred its interest in the debt to Energoalliance, which eventually initiated arbitration proceedings against Moldova under the Energy Charter Treaty (“ECT”). In 2013, an arbitral tribunal in Paris concluded it had jurisdiction over the dispute by construing the debt originating from the contracts as an “investment” under the ECT. It then determined that Moldova had violated the treaty by denying Energoalliance the benefits of that investment and awarded Energoalliance almost $46.5 million.

         Award in hand, Energoalliance commenced confirmation proceedings in a number of jurisdictions, including this Court in 2014. At the same time, Moldova filed an action to set aside the award with the Paris Court of Appeal, which in 2016 concluded that the tribunal had misinterpreted the subject debt as an “investment” under the ECT. Energoalliance then appealed that ruling to the highest civil court in France-the Court of Cassation-which reinstated the award in 2018 after finding that the intermediate court had introduced an additional requirement for “investment” not contained in the ECT. The case is now back before the Paris Court of Appeal to consider alternative arguments advanced by Moldova to set aside the award.

         Meanwhile, in November 2018, this Court determined that because the award is presently enforceable under French law notwithstanding the pendency of the set-aside proceedings, it would be appropriate to lift a stay-which it had imposed when Moldova initiated the set-aside action-and proceed to the merits of the confirmation petition. See LLC Komstroy v. Republic of Moldova, No. 14-cv-1921 (CRC), 2018 WL 5993437 (D.D.C. Nov. 13, 2018). The Court does so now. In what follows, the Court first ensures that it has subject matter jurisdiction under the Foreign Sovereign Immunities Act before considering Moldova's objections to confirming the award. Concluding that the country has not met its substantial burden of resisting confirmation under the applicable treaty, the Court will grant the petition to confirm the award and deny Moldova's motion to dismiss.

         I. Background

         This case began in November 2014, when Energoalliance filed a Petition to Confirm Foreign Arbitral Award pursuant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, as implemented by Chapter 2 of the Federal Arbitration Act. See Petition, ECF No. 1. The petition seeks recognition of a final arbitral award issued in October 2013 by an ad hoc tribunal in Paris, France in favor of Petitioner and against the Republic of Moldova. Id. ¶ 1.

         The parties' dispute goes back decades.[1] Before the collapse of the Soviet Union, Moldova received its electricity from Ukraine pursuant to economic plans approved by Moscow. See Ex. B, Part I to Decl. of Viacheslav Lych (“Award”), ECF No. 8-4, ¶ 187 (filed under seal). After the collapse, Energoalliance-a private Ukrainian company-undertook the task of providing power to Moldova pursuant to a series of supply contracts dating from February 1999. As relevant here, Agreement No. 1/01 provided that Energoalliance would purchase electricity from Ukraine's state-owned electricity producer for export to Moldova's state-owned utility, Moldtranselectro. Id. ¶ 69. Under Agreement No. 24/02, Energoalliance would sell the Ukrainian electricity to a third-party British Virgin Islands entity, Derimen, which would then resell the electricity to Moldtranselectro. Id. ¶¶ 70-71. The agreements were structured this way because if Energoalliance were to sell electricity directly to Moldtranselectro, it would bear the risk of steep regulatory fines pursuant to Ukrainian currency controls should the Moldovan entity fail to make timely payments. Id. ¶¶ 203-04, 217; see also Declaration of Viacheslav Lych (“Lych Decl.”) in Supp. of Petition, ECF No. 1-3, ¶ 7. As it turned out, Moldova did fall behind on its payments to Derimen, leading Derimen in May 2000 to assign the debt to Energoalliance pursuant to Agreement No. 06/20. See Award ¶¶ 72-74.

         Energoalliance's efforts to collect the debt directly from Moldtranselectro proved fruitless due in large part to interference by the Moldovan government. For instance, the government in October 2000 reorganized Moldtranselectro by transferring its assets and functions to a new state-owned company while leaving its obligations intact. Id. ¶¶ 87-88. In 2002, the Moldovan auditing chamber, in a quasi-judicial, ex parte proceeding, concluded that it could not be proven that Energoalliance had provided electricity to Moldtranselectro, id. ¶ 101, and ordered the utility “to cancel its debts related to said electricity supplies, ” id. ¶ 102. Energoalliance's appeal of that determination was unsuccessful. Id. ¶ 106. Other efforts in Moldovan courts were similarly futile. Id. ¶¶ 113-16.

         After a decade of unsuccessful collection efforts, Energoalliance instituted arbitration proceedings before an ad hoc tribunal in Paris, France in July 2010. Petition ¶¶ 17-18. The arbitration arose under the Energy Charter Treaty (“ECT”), 2080 U.N.T.S. 100-a multilateral treaty to which Moldova and Ukraine are parties-and was conducted under the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules. Id. ¶ 18. After a full exchange of written evidence and pleadings as well as a three-day hearing in July 2012, see Award ¶¶ 15-17, 19-20, 24, 37-39, 41-42, a majority of the tribunal concluded in October 2013 that it had jurisdiction under the ECT[2] and that Moldova had breached its obligations under the treaty.[3] It ordered Moldova to pay Energoalliance the following:

1. 195, 547, 212 Moldovan Lei (“MLD”) as the amount of Energoalliance's lost investment;
2. MLD 357, 916, 008 in interest for the period up to May 31, 2012;
3. MLD 39, 417, 175 in interest for the period between June 1, 2012 and the date of the Award;
4. $200, 000 U.S. Dollars (“USD”) for Energoalliance's attorneys' fees in the arbitration;
5. $340, 000 USD in arbitration costs.

Id. ¶ 436. These items totaled almost $46.5 million based on the exchange rate on that date.

         In November 2014, Moldova made a formal application to the Paris Court of Appeal to set aside the Award on grounds similar to those it advanced before the ad hoc tribunal-that the tribunal lacked jurisdiction over the claims under the ECT and that the Award violated public order. Petition ¶ 28. During the pendency of the set-aside proceeding before the Paris Court of Appeal, Petitioner requested and received from the High Court of Paris an “exequatur, ” or order to enforce the Award. Lych Decl. ¶ 16.

         As previously noted, Petitioner initiated this case in November 2014. Moldova-acting through its Ministry of Justice and without entering an appearance by counsel[4]-submitted a document titled “Reference” received by this Court in July 2015. See ECF No. 12. The Court construed this submission as a motion to dismiss and directed Petitioner to respond, which it did. See ECF Nos. 14, 16, 17. Moldova then requested a stay pending resolution of the set-aside proceeding before the Paris Court of Appeal. See ECF No. 20. But before the Court could rule on that request, Petitioner informed the Court that the Paris Court of Appeal had, in April 2016, vacated the 2013 Award for lack of jurisdiction. See Pet'r Notice, ECF No. 21, at 1. The Paris court did not reach Moldova's argument regarding international public order. Petitioner informed this Court that it intended to appeal the adverse decision to the Cour de Cassation (“Court of Cassation”), the highest civil court in France, and requested a stay of this matter pending resolution of that appeal. Id. Moldova concurred in this stay request. See ECF No. 22. The Court thus stayed the case. See Apr. 22, 2016 Minute Order. Despite the stay, both parties continued to litigate the case-at least in part. Petitioner filed a more extensive reply to Moldova's motion to dismiss the petition, see ECF No. 27, and Moldova filed a renewed motion to dismiss, see Renewed Mot. to Dismiss (“Renewed MTD”), ECF No. 37.

         A few years later, Petitioner informed the Court that in March 2018, the Court of Cassation had issued a decision in its favor. See Status Report re: Cour de Cassation Proceedings, ECF No. 32 at 2. That decision reversed and voided the 2016 Paris Court of Appeal's jurisdictional decision and remanded the case to a “differently composed” panel to consider Moldova's remaining arguments. See Ex. A to Status Report re: Cour de Cassation Proceedings (“Court of Cassation Decision”), ECF No. 32-1, at 2-3. Petitioner submitted that it was finally time for the Court to consider the confirmation petition on the merits. See Pet'r Mot. to Lift Stay, ECF No. 33. Moldova objected, asking the Court to extend the stay pending the renewed proceedings in the Paris Court of Appeal. See Motion to Extend Stay, ECF No. 35.

         In light of the Court of Cassation's decision and finding that the exequatur made the Arbitral Award presently enforceable under French law, this Court lifted the stay in November 2018. See LLC Komstroy v. Republic of Moldova, No. 14-cv-1921 (CRC), 2018 WL 5993437 (D.D.C. Nov. 13, 2018). After proceeding without counsel for four years, Moldova finally retained representation. See ECF Nos. 46, 47. Counsel for Moldova then requested leave to withdraw the country's previous submissions, acknowledging the Court's prior observation that the materials “do not conform to the Federal Rules of Civil Procedure and are generally lacking in legal analysis, including citations of law.” Mot. for Leave to Withdraw, ECF No. 48, at 1. The Court denied that request, reasoning that because Moldova was a sophisticated party and had made an informed decision to proceed unrepresented, the Court would not “undo all that has come before simply because Moldova has now changed its mind and retained counsel.” Order Denying Motion to Withdraw, ECF No. 52, at 2. That said, it allowed Moldova to file a reply in support of its renewed motion to dismiss. Id. at 2-3. After Petitioner filed its surreply, see Pet'r Surreply in Opp. to Renewed MTD, ECF No. 54, the Court granted Moldova leave to file a supplemental reply, and Petitioner the opportunity to file one final reply, see Mar. 7, 2019 Minute Order.

         With that, Moldova has now had a full opportunity to lodge its objections to confirmation, and the petition and the renewed motion to dismiss are at last ripe for this Court's review. Through its string of filings in support of the motion to dismiss, Moldova has raised the following grounds for dismissal: (1) the Court lacks subject matter jurisdiction because Moldova enjoys sovereign immunity from suit; (2) the Court should dismiss the petition under the doctrine of forum non conveniens; and (3) the Court should deny confirmation of the Award pursuant to two defenses under the New York Convention. See Renewed MTD at 3-4, 9, 13; Reply in Further Support of Renewed Motion to Dismiss (“Reply in Supp. of Renewed MTD”), ECF No. 53, at 4, 11; Supplemental Reply in Further Support of Renewed Motion to Dismiss (“Suppl. Reply in Supp. of Renewed MTD”), ECF No. 56, at 1-4, 10. Should these arguments fail, Moldova also disputes the terms by which the Award should be confirmed, contending that (1) the Court should not convert the Award into U.S. dollars (2) but if it does, it should use the currency exchange rate from the date of this Court's judgment; and (3) the Court should not award pre or postjudgment interest. Renewed MTD at 19; Reply in Supp. of Renewed MTD at 21-25; Suppl. Reply in Supp. of Renewed MTD at 11-15.

         II. Legal Standards

         Before addressing the parties' arguments, the Court briefly sets out the legal authorities underlying the Court's analysis: the Foreign Sovereign Immunities Act, which governs this Court's jurisdiction over Respondent Moldova, and the New York Convention, which governs enforcement of foreign arbitral awards.

         A. Foreign Sovereign Immunities Act

         The Foreign Sovereign Immunities Act of 1976 (“FSIA”) is the “sole basis for obtaining jurisdiction over a foreign state in the courts” of the United States. Belize Soc. Dev. Ltd. v. Gov't of Belize, 794 F.3d 99, 101 (D.C. Cir. 2015) (internal quotation omitted). Under the statute, “a foreign state is presumptively immune from the jurisdiction of the United States courts[ ] unless a specified exception applies.” Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993). Because subject matter jurisdiction depends on the existence of one of the specified exceptions, a threshold determination of every action in a district court against a foreign state is whether one of the exceptions applies. See Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 493-94 (1983). The Court addresses relevant exceptions below.

         A petitioner “bears the initial burden of supporting its claim that an FSIA exception applies.” Chevron Corp. v. Ecuador (“Ecuador”), 795 F.3d 200, 204 (D.C. Cir. 2015). The burden then shifts to the respondent-here, Moldova-to prove by a preponderance of the evidence that the petitioner's “allegations do not bring its case within a statutory exception to immunity.” Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 40 (D.C. Cir. 2000) (citation omitted); see also Ecuador, 795 F.3d at 204.

         B. The New York Convention

         The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the New York Convention, is a multilateral treaty providing for “the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought.” Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), opened for signature June 10, 1958, art. 1.1, 21 U.S.T. 2517. The Convention has been incorporated into United States law through the Federal Arbitration Act (“FAA”). 9 U.S.C. §§ 201 et seq. Federal court review of foreign arbitral awards is extremely deferential under both the FAA and the Convention. “Consistent with the ‘emphatic federal policy in favor of arbitral dispute resolution' recognized by the Supreme Court[, ] . . . the FAA affords the district court little discretion in refusing or deferring enforcement of foreign arbitral awards.” Belize Soc. Dev. Ltd. v. Gov't of Belize, 668 F.3d 724, 727 (D.C. Cir. 2012) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985)). And under the New York Convention, the Court must “confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in [Article V of the] Convention.” 9 U.S.C. § 207. “The party resisting confirmation”-here, Moldova-“bears the heavy burden of establishing that one of the grounds for denying confirmation in Article V applies.” Gold Reserve, Inc. v. Bolivarian Republic of Venezuela, 146 F.Supp.3d 112, 120 (D.D.C. 2015).

         III. Analysis

         These provisions in mind, the Court first considers its subject matter jurisdiction before addressing Moldova's two challenges to confirmation of the Award under Article V of the New York Convention. The Court also addresses Moldova's forum non conveniens argument. The Court concludes by considering whether to convert the Award into U.S. dollars and whether to award prejudgment interest.

         A. Subject Matter Jurisdiction

         “[T]wo conditions must be satisfied” for this Court to exercise subject matter jurisdiction “over a foreign sovereign for the enforcement of an arbitral award”: “‘First, there must be a basis upon which a court in the United States may enforce a foreign arbitral award; and second, [the foreign sovereign] must not enjoy sovereign immunity from such an enforcement action.'” Diag Human, S.E. v. Czech Republic-Ministry of Health, 824 F.3d 131, 134 (D.C. Cir. 2016) (alteration in original) (quoting Creighton Ltd. v. Gov't of the State of Qatar, 181 F.3d 118, 121 (D.C. Cir. 1999)). Following the D.C. Circuit's lead in Diag Human, the Court takes these requirements in reverse, see id., first considering the applicability of any exceptions to sovereign immunity before examining whether the New York Convention provides a basis upon which the Court may enforce the Award. The Court finds both conditions satisfied.

         Petitioner asserts that the Court may exercise subject matter jurisdiction pursuant to what are known as the arbitration and waiver exceptions under the FSIA. Petition ¶¶ 5-6. The Court need only address the first to conclude that it has subject matter ...


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