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TECO Guatemala Holdings, LLC v. Republic of Guatemala

United States District Court, District of Columbia

September 30, 2018




         Petitioner TECO Guatemala Holdings, LLC (“TECO”) commenced this action by filing a petition to confirm an arbitral award rendered by the International Centre for Settlement of Investment Disputes (“ICSID”) against the Republic of Guatemala (“Guatemala”). Dkt. 1. Although all agree that the role of a federal court asked to confirm an ICSID award is limited, Guatemala requests that the Court dismiss TECO's petition for failure to state a claim. Dkt. 23. Guatemala maintains, in short, that ICSID annulled the arbitral award and that, as a result, there is nothing for this Court to confirm. TECO, unsurprisingly, disagrees and submits that the arbitral award that it seeks to enforce is alive and well. Dkt. 26. As explained below, TECO has the better argument and, accordingly, the Court will DENY Guatemala's motion to dismiss TECO's petition, Dkt. 23.

         I. BACKGROUND

         A. ICSID Structure and Enforcement

         In the 1960s, the World Bank “spearheaded” an effort to develop 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) (citing Anthony R. Parra, The History of ICSID 11-12, 24-26 (Oxford 2012)). The product of that effort was the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”), Mar. 18, 1965, 17 U.S.T. 1270, a multilateral treaty designed “to promote economic development and private international investment by providing a legal framework . . . to resolve . . . disputes between private investors and governments.” Micula v. Gov't of Romania, 104 F.Supp.3d 42, 44 (D.D.C. 2015). Most significantly for present purposes, the ICSID Convention established the International Centre for Settlement of Investment Disputes-or “ICSID, ” as it is commonly known-which has the authority to convene arbitration panels “to adjudicate disputes between international investors and host governments in ‘Contracting States.'” Mobil Cerro Negro, Ltd., 863 F.3d at 101. The United States is a signatory to the ICSID Convention, see Int'l Ctr. for Settlement of Inv. Disputes, List of Contracting States and Other Signatories of the Convention (last visited Sept. 29, 2018), and Congress has enacted implementing legislation, see Convention on the Settlement of Investment Disputes Act of 1966, Pub. L. 89-532, 80 Stat. 334 (1966) (codified at 22 U.S.C. §§ 1650 and 1650a).

         The ICSID Convention provides an international framework for adjudicating and enforcing investor-state disputes. First, “[a]ny Contracting State or any national of a Contracting State” may request that ICSID convene an arbitration tribunal. See ICSID Convention art. 36. The tribunal, consisting of either a single arbitrator or “any uneven number of arbitrators, ” id. art. 37, considers the dispute and issues a written award, which “deal[s] with every question submitted to the [t]ribunal, and state[s] the reasons upon which it is based, ” id. art. 48. If either party contests the tribunal's award, it may request “revision” if there is a newly-discovered material fact previously unknown to the parties and arbitrator, see Id. art. 51, or “annulment” if a party challenges the tribunal's substantive decision, id. art. 52. When a party seeks annulment, ICSID convenes an ad hoc committee of three members, which is authorized “to annul the award or any part thereof.” Id. At a party's request, enforcement of an award is “stayed provisionally until the [c]ommittee” renders its decision. Id. But, “[e]xcept to the extent that enforcement” has been stayed, the tribunal's award remains “binding on the parties and shall not be subject to any appeal or to any other remedy” other than those set forth in the ICSID Convention. Id. art. 53. Following an annulment, either partial or full, either party may request resubmission of the dispute to a new tribunal-although if an award had been annulled only in part, the new tribunal is prohibited from reconsidering any non-annulled portion of the award. Id. r. 55. As Guatemala acknowledges, “[p]artially annulled awards can be enforced.” Dkt. 23-1 at 22.

         ICSID is not empowered to enforce awards. Instead, prevailing parties must register their awards with a court of a member state. The courts of member states are required to “recognize an award . . . as binding and [to] enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that [s]tate, ” or, for a member state with “a federal constitution, ” to “treat the award as if it were a final judgment of the courts of a constituent state.” Id. art. 54. A member state is “not permitted to examine an ICSID award's merits, its compliance with international law, or the ICSID tribunal's jurisdiction to render the award;” all it may do is “examine the judgment's authenticity and enforce the obligations imposed by the award.” Mobil Cerro Negro, Ltd., 863 F.3d at 102. Consistent with this obligation, the U.S. implementing legislation confers exclusive jurisdiction on the federal district courts to enter awards, see 22 U.S.C. § 1650a(b), and provides that an ICSID arbitration 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).

         B. Guatemala and TECO's Dispute

         The ICSID arbitration at issue in this case involves a dispute between TECO Guatemala Holdings, LLC (hereinafter “TECO”), an energy company incorporated in the United States, and the Republic of Guatemala. Dkt. 1 at 2 (Pet. ¶ 2). In 1997, Guatemala announced a plan to privatize Empresa Eléctrica de Guatemala, S.A. (“EEGSA”), the largest electricity distribution company in the country. Id. at 4 (Pet. ¶ 9). A consortium of energy companies, including TPS de Ultramar Guatemala, S.A. (“TPS”), a subsidiary of TECO Energy, created an investment company that acquired a controlling interest in EEGSA in July 1998. Id. (Pet. ¶ 10). TPS held a “21 percent” share of the consortium, and from 1998 until the sale of the consortium in 2010, the consortium maintained “an approximate 81 percent controlling interest in EEGSA.” Id. (Pet. ¶ 10). In 2005, TPS's shares in the consortium were transferred to TECO. Id. (Pet. ¶ 11).

         The arbitration between TECO and Guatemala concerned the electricity rates paid to EEGSA and other distribution companies. Among other components, the applicable rates incorporated a Value Added for Distribution-or “VAD”-which was intended to compensate the distributors for operating expenses and infrastructure and to provide a fair return on investment. Id. (Pet. ¶ 12). The VAD was recalculated every five years by a Guatemalan regulatory agency, the National Electric Energy Commission (“CNEE”), which published the electricity rates for EEGSA and other electricity distributors in accordance with Guatemalan law. Id. According to TECO, the process by which NCEE set the VAD for the 2008-2013 tariff period was unlawful in multiple respects and, as a result, violated Guatemala's obligation under Article 10.5 of the Dominican Republic-Central America Free Trade Agreement (“DR- CAFTA”), 43 I.L.M. 514 (2004), “to afford protected investments fair and equitable treatment.”[1]Id. at 5 (Pet. ¶ 14). CNEE's actions resulted in “cash flow losses” for TECO and, according to TECO, ultimately led to the sale of the company “at a depreciated value” in 2010. Id. at 5 (Pet. ¶¶ 13-14). Pursuant to Articles 10.15 and 10.16 of the DR-CAFTA, TECO filed a claim in arbitration against Guatemala in October 2010. Id. at 5-6 (Pet. ¶¶ 15-16). That proceeding was governed by the ICSID Convention and the ICSID Rules and Procedures for Arbitration Proceedings. Id. at 5 (Pet. ¶ 15).

         C. Procedural History before the ICSID

         In the DR-CAFTA arbitration, TECO sought damages in the amount of $243, 585, 335. Id. at 6 (Pet. ¶ 17). That total was the sum of two distinct claims for relief:

         First, TECO sought $21, 100, 552 to compensate it for the “portion of the cash flow EEGSA lost from August 1, 2008, when the VAD took effect, until October 21, 2010, when [TECO] sold its ownership interest in EEGSA.” Id. (Pet. ¶ 17). That amount, according to TECO, was necessary to compensate it for the revenue that it would have received during the relevant period had Guatemala not understated the VAD. TECO refers to this claim as its “historical loss” or “cash flow value” claim.

         Second, TECO sought $222, 484, 783 to compensate it for “the damages [it] suffered . . . as a result of the impaired value at which [TECO] sold its ownership interest in EEGSA.” Id. at 7 (Pet. ¶ 17). This amount, according to TECO, was necessary to compensate it for the depreciated market value of the consortium, and thus the depreciated market value of TECO's share, resulting from the understated VAD. TECO refers to this claim as its “loss of value” claim. Id. (Pet. ¶ 17).

         On December 19, 2013, the ICSID arbitration Tribunal found that Guatemala had violated the DR-CAFTA. See Id. (Pet. ¶¶ 18-19); see also Dkt. 1-2 at 3 (Arb. Award). TECO's success on its damage claims, however, was mixed. The Tribunal found the TECO had presented sufficient evidence to establish an “historical loss” of $21, 100, 552. Dkt. 1-2 at 146 (Arb. Award ¶ 742). As the Tribunal explained, the evidence showed that TECO was entitled to its “share of the higher revenues that EEGSA would have received had the CNEE observed due process in the tariff review, ” which was calculated “from the moment the high revenues would have been first received until the moment when [TECO] sold its share in EEGSA.” Id. But the Tribunal was not persuaded that TECO had offered evidence sufficient to prevail on its “loss of value” claim for $222, 484, 783. Id. at 146-47 (Arb. Award ¶¶ 744-749). As to that claim, the Tribunal found that there was not “sufficient evidence of the existence and quantum of the losses that were allegedly suffered as a consequence of the sale” of the consortium at a depreciated price. Id. at 147 (Arb. Award ¶ 749).

         The final paragraph of the Tribunal's decision ...

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