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Micula v. Government of Romania

United States District Court, District of Columbia

September 11, 2019

IOAN MICULA, et al., Petitioners,
v.
GOVERNMENT OF ROMANIA, Respondent.

          MEMORANDUM OPINION

          AMIT P. MEHTA UNITED STATES DISTRICT COURT JUDGE.

         I. INTRODUCTION

         Petitioners Viorel Micula, Ioan Micula, and three entities they control have asked this court to confirm an arbitration award entered in their favor against Respondent Government of Romania (“Romania”) by a tribunal convened under the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Confirming the award would render it an enforceable judgment in the United States. Romania raises a host of objections to confirming the award, including a challenge to the court's subject matter jurisdiction. The European Commission, appearing as amicus curiae, also advocates against confirming the award.

         For the reasons that follow, the court grants the petition to confirm the arbitration award and enters judgment in favor of Petitioners.

         II. BACKGROUND

         A. Factual Background

         1. The ICSID Convention

         The International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“Convention”) is “a multilateral treaty aimed at encouraging and facilitating private foreign investment in developing countries.” Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 863 F.3d 96, 100 (2d Cir. 2017). The Convention carries out that purpose by providing a legal framework and procedural mechanism to resolve disputes between private investors and governments. See Convention on the Settlement of Investment Disputes between States and Nationals of Other States Preamble, Mar. 18, 1965, T.I.A.S. No. 6090, 17 U.S.T. 1270. The Convention establishes the International Centre for Settlement of Investment Disputes, or “ICSID, ” as an international institution that operates under the auspices of the World Bank. See Mobil Cerro Negro, 863 F.3d at 101. ICSID convenes arbitration panels “to adjudicate disputes between international investors and host governments in ‘Contracting States.'” Id. Romania and Sweden are signatories to the ICSID Convention. So, too, is the United States.

         “Any Contracting State or any national of a Contracting State” may ask ICSID to convene an arbitral tribunal to resolve a dispute. Convention art. 36. The tribunal is tasked with adjudicating the dispute and, if warranted, issuing a written award that addresses “every question submitted to the Tribunal” and “state[s] the reasons upon which [the award] is based.” Id. art. 48. A party may contest the tribunal's decision, consistent with the procedures set forth in the Convention. See Id. arts. 51-52. But critically, “except to the extent that enforcement [is] stayed, ” the tribunal's ruling is “binding on the parties and shall not be subject to any appeal or to any other remedy” other than those afforded under the Convention. Id. art. 53. In other words, the domestic courts of member countries lack the authority to review the merits of a decision by an ICSID tribunal.

         The Convention does not, however, confer upon ICSID the power to enforce arbitral awards. It left that function to its Contracting States. Article 54(1) of the Convention provides: “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.” Id. art. 54(1). Contracting States that, like the United States, have a federal system of government “may enforce such an award in or through [their] federal courts and may provide that such courts shall treat the award as if it were a final judgment of the courts of a constituent state.” Id.

         The ICSID Convention also is not self-executing. See Medellin v. Texas, 552 U.S. 491, 505-06 (2008) (explaining when a treaty obligation requires legislation to become domestic law). Contracting States must “take such legislative or other measures as may be necessary for making the provisions of this Convention effective in [their] territories.” Convention art. 69. In the United States, Congress gave the ICSID Convention domestic effect by passing the Convention on the Settlement of Investment Disputes Act of 1966. See Convention on the Settlement of Investment Disputes Act of 1966, Pub. Law 89-532, 80 Stat. 334 (1966) (codified at 22 U.S.C. §§ 1650 and 1650a). Section 3 of the Act addresses the enforcement of ICSID arbitration awards in the United States. It provides in relevant part: “The pecuniary obligations imposed by [an ICSID] award shall be enforced and shall be given the same full faith and credit as if the award were a final judgment of a court of general jurisdiction of one of the several States.” 22 U.S.C. § 1650a(a). Federal courts are vested with “exclusive jurisdiction over actions and proceedings” to enforce ICSID awards. Id. § 1650a(b).

         2. Events Leading to the ICSID Arbitration

         This case arises out of a dispute between Swedish investors and Romania. Following the overthrow of the communist regime of Nicolae Ceausescu in December 1989, the country of Romania found itself in dire economic and social circumstances. See Ioan Micula, et al. v. Romania, ICSID No. ARB/05/20 (Dec. 11, 2013), ECF No. 1-1-1-4 [hereinafter Final Decision], ¶ 137. In response to these problems, Romania adopted a series of measures designed to attract and promote investment. Id. ¶¶ 138-144. Among the measures was Emergency Government Ordinance No. 24/1998 (“EGO 24”), which established a framework for granting incentives to invest in “disfavored” regions of Romania. Id. ¶ 145.

         The petitioners in this case are Swedish nationals Viorel and Ioan Micula, along with three companies they control, SC European Food S.A., SC Starmill S.R.L., and S.C. Multipack S.R.L. See Petition to Confirm ICSID Award, ECF No. 1 [hereinafter Pet.], ¶¶ 8-12. Starting in 1998, in reliance on the incentives offered by EGO 24, Petitioners began to build an integrated food platform designed to produce consumer products and beverages for the Romanian market. Final Decision ¶¶ 166-172.

         In August 2004, Romania thwarted Petitioners' plans when it announced that it would repeal EGO 24, effective February 22, 2005. Id. ¶ 241. Romania made the repeal decision as part of the process of becoming a member of the European Union (“EU”). Id. ¶¶ 234-239. The action followed Romania's receipt of advice from the European Commission-an institution of the European Union that is responsible for ensuring the proper application of EU treaties-that the incentives constituted “state aid” that was incompatible with the EU's prohibition of such anticompetitive schemes. Id. The incentives' repeal caused Petitioners to suffer cash constraints that prevented them from completing the projects they had planned in reliance on EGO 24. Id. ¶ 172.

         2. The ICSID Arbitration

         In 2002, Romania entered a bilateral investment treaty (“Sweden-Romania BIT”) with the Kingdom of Sweden, which entered into force on April 1, 2003. Final Decision ¶ 226. That treaty granted certain protections to each country's investors who invested in the other country, including the right to arbitrate investment disputes. See Agreement between the Government of the Kingdom of Sweden and the Government of Romania on the Promotion and Reciprocal Protection of Investments art. 2, Swed.-Rom., May 29, 2002, Law No. 541/2002 (Rom.) [hereinafter Sweden-Romania BIT]. Pertinent to the parties' dispute is Article 7 of the Sweden-Romania BIT. See generally Ioan Micula, et al. v. Romania, ICSID No. ARB/05/20 (Sept. 24, 2008), ECF No. 62-2. It provides that disputes concerning investments are to be settled by international arbitration, before either an ICSID arbitral tribunal or an ad hoc tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law. See Id. ¶ 57; Sweden-Romania BIT art. 7.

         In response to Romania's decision to revoke financial incentives, Petitioners initiated arbitration proceedings against Romania before an ICSID tribunal on August 2, 2005. Final Decision ¶ 10. Petitioners claimed that they had made investments in certain regions of Romania in reliance on the economic incentives. Id. ¶ 131. The revocation of those incentives, Petitioners alleged, caused them to suffer significant financial losses, for which Romania was liable. Id. ¶¶ 131, 262. The ICSID tribunal agreed. In December 2013, the tribunal ruled for Petitioners and awarded monetary damages of 376, 433, 229 Romanian Leu (RON)-the equivalent of $116, 317, 868-plus interest at the rate of the three-month Romanian Interbank Offer Rate, plus 5%, compounded on a quarterly basis with respect to certain amounts and periods (“the Award”). Id. ¶ 1329.

         3. Romania Joins the European Union

         Meanwhile, in parallel with the ICSID arbitral tribunal proceedings, Romania continued taking steps necessary to join the EU. Id. ¶¶ 246-47. Romania formally joined the EU on January 1, 2007-after Petitioners invoked their right to arbitration under the Sweden-Romania BIT but before the ICSID tribunal ruled in favor of Petitioners. Id. ¶¶ 247-49.

         Shortly after the ICSID tribunal issued the award, the European Commission advised Romania that implementing or executing the Award would constitute impermissible new state aid, about which Romania would be required to notify the Commission. See Commission Decision (EU) 2015/1470 of 30 March 2015, ECF No. 51-2 [hereinafter State Aid Decision], ¶ 2. Three months later, in May 2014, the Commission issued a “suspension injunction, ” prohibiting Romania from taking any action to fulfill any part of the Award not yet paid until the Commission reached a final decision on whether the Award constituted state aid. Id. ¶ 6.

         As a result of the suspension injunction, Romania returned to ICSID. Invoking Article 52 of the Convention, Romania asked ICSID to convene an ad hoc tribunal for the purpose of annulling the Award. Id. ¶ 28. ICSID did so, and on August 7, 2014, the tribunal agreed to stay enforcement of the Award. Id. It conditioned the stay, however, on Romania's committing, without qualification, to pay the full Award if the ICSID tribunal decided not to annul the Award. Id. Romania declined to provide the unconditional commitment to pay. Id. ¶ 29. The tribunal then lifted the stay of enforcement on September 7, 2014. Id.

         Nearly a year after issuing the suspension injunction, on March 30, 2015, the Commission issued its decision on whether the Award constituted state aid in violation of EU law (“the State Aid Decision”). The Commission found that it did. Id. ¶ 125. The Commission concluded that, because the benefits generated by Romania's incentive law was unlawful state aid, so too was the Award, which sought to compensate Petitioners for the advantages negated by the incentives' repeal. Id. ¶¶ 95, 109-24. The Commission rejected Petitioners' view that the ICSID Convention controlled, reasoning that EU law superseded the Sweden-Romania BIT. Id. ¶¶ 126-29. The State Aid Decision concluded by ordering Romania not to pay any further amounts on the Award and to recover any amounts already paid. Id. at 33, art. 2. Petitioners filed an appeal of the State Aid Decision with the General Court of the Court of Justice of the European Union, a constituent court of the EU's highest court, the Court of Justice of the European Union (CJEU).

         In the meantime, the annulment proceedings before the ICSID ad hoc tribunal continued. Almost a year after the State Aid Decision, the ad hoc tribunal issued its final decision on February 26, 2016. It rejected Romania's effort to annul the Award. See Ioan Micula, et al. v. Romania, ICSID No. ARB/05/20 (Feb. 26, 2016), ECF No. 1-5. In so doing, the tribunal summarily rejected the argument put forward by the European Commission, which had intervened, that the Award was incompatible with EU law on state aid. See Id. ¶¶ 308-28. The ICSID ad hoc tribunal's decision thus created a direct conflict with the Commission's State Aid Decision.

         B. Petitioners' Efforts to Confirm the Award in the United States

         As Petitioners and Romania duked it out before the Commission and ICSID over the validity of the Award, Petitioners came to the United States to attempt to “confirm” the Award under 22 U.S.C. § 1650a.[1] A confirmed Award would render it an enforceable judgment in United States courts. See generally Micula v. Gov't of Rom., 104 F.Supp.3d 42, 44 (D.D.C. 2015) [hereinafter Micula I]. Petitioners' efforts to confirm the Award, and Romania's corresponding efforts to resist confirmation, have proceeded on a long, winding road over five years along the I-95 corridor from Washington, D.C., to New York City, and back to Washington, D.C.

         The opening act took place here, before this court. On April 11, 2014, Petitioner Viorel Micula, proceeding only on his own behalf, filed a petition to confirm the Award. Citing the practice of the federal District Courts in the Southern District of New York (“SDNY”), Viorel urged this court to confirm the Award though an ex parte, summary proceeding. See Id. at 46. For that reason, Viorel never served the Government of Romania, and Romania did not formally appear. See Id. at 47. This court, however, refused to confirm the Award in an ex parte proceeding. See Id. at 52. The court held that § 1650a did not permit ex parte confirmation of an ICSID award, but instead required a petitioner to “file a plenary action, subject to the ordinary requirements of process under the Foreign Service Immunities Act [“FSIA”].” Id. Viorel elected not to file such an action and voluntarily dismissed his petition.

         Five days after this court ruled, the other Petitioners, later joined by Viorel, sought a presumably more favorable legal terrain and filed a petition for confirmation in the SDNY. They initially found success. On April 21, 2015, the court confirmed the Award in an ex parte, summary proceeding, thereby converting the Award to a judgment. See Micula v. Gov't of Rom., No. 15 MISC. 107, 2015 WL 4643180, at *2 (S.D.N.Y. Aug. 5, 2015) (allowing proceeding to move forward ex parte). Romania later appeared and asked another judge in the SDNY to vacate the judgment on the ground that the ex parte proceeding violated the FSIA. See Id. at *3. Also, the European Commission filed an amicus brief in those proceedings, and it urged the court either to abstain from exercising jurisdiction or vacate the judgment on the grounds of foreign comity, the act of state doctrine, and the foreign compulsion doctrine, each argument premised on the ongoing proceedings in Europe. See Id. at *2, *6-8. The court in the SDNY rejected all of these arguments and re-affirmed the judgment against Romania. See Id. at *3-8; see also Micula v. Gov't of Rom., No. 15 MISC. 107 (LGS), 2015 WL 5257013 (S.D.N.Y. Sept. 3, 2015) (rejecting second motion for reconsideration by Romania). Romania appealed.

         Petitioners' victory proved to be fleeting. At the same time Romania was prosecuting its appeal, another sovereign, the Bolivarian Republic of Venezuela, was also fighting an SDNY District Court's ex parte confirmation of an ICSID award in the Second Circuit. On July 11, 2017, the Second Circuit issued its decision in Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela. The case involved three key holdings. The first was that the FSIA provides the sole basis for subject matter jurisdiction for proceedings under § 1650a, and that § 1650a does not itself confer such jurisdiction. 863 F.3d at 112-15. Second, the court held the FSIA controls the manner of obtaining personal jurisdiction over a sovereign, and therefore confirming an ICSID award pursuant to a summary, ex parte proceeding was improper. See Id. at 116-21. Finally, the court found that a proceeding pursuant to § 1650a must be initiated like a procedure to enforce a state court judgment-by way of a plenary action with service upon the foreign sovereign. See Id. at 121-24.

         Based on these rulings in Mobil Cerro Negro, another panel of the Second Circuit on October 23, 2017, vacated the judgment against Romania. See Micula v. Gov't of Romania, 714 Fed. App'x 18, 21-22 (2d Cir. 2017). The panel also made clear that, under the FSIA's venue provision, venue was proper only in the ...


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