Northrop Grumman Ship Sys., Inc. v. Ministry of Def. of Republic of Venezuela

NORTHROP GRUMMAN SHIP SYSTEMS, INCORPORATED,formerly known as INGALLS SHIPBUILDING, INCORPORATED, Plaintiff—Appellee, v. THE MINISTRY OF DEFENSE OF THE REPUBLIC OF VENEZUELA, Defendant—Appellant.

No. 20-60347

United States Court of Appeals for the Fifth Circuit

March 10, 2021

Appeal from the United States District Court for the Southern District of Mississippi

USDC No. 1:02-CV-785

Before HAYNES, DUNCAN, and ENGELHARDT, Circuit Judges.

PER CURIAM:^*

A little over a year before Hugo Chávez came to power in Venezuela, Huntington Ingalls Incorporated ("Huntington Ingalls," formerly known both as Northrop Grumman Ship Systems, Inc. and as Ingalls Shipbuilding, Inc.), a U.S.-based defense contractor, agreed to refurbish two warships forthe Ministry of Defense of the Republic of Venezuela (the "Ministry"). A couple of years later—after Chávez became president of Venezuela at the head of the "Bolivarian Revolution"—Huntington Ingalls sought to arbitrate a cost overrun dispute with the Ministry.

Although the parties' contract designated Venezuela as the exclusive arbitral forum, the district court ordered arbitration outside that country, determining that arbitration in Venezuela would be impracticable given the likelihood that the hostile political environment in the country would make Venezuelan courts unfairly side with the Ministry in any related disputes. Following the district court's impracticability determination, the arbitration tribunal eventually moved the arbitration to Brazil, where it awarded Huntington Ingalls over $128 million. The district court then enforced the arbitral award and entered judgment in Huntington Ingalls's favor, concluding that the tribunal had not manifestly disregarded the parties' agreement or the law. For the following reasons, we AFFIRM.

I. Background

In 1997, Huntington Ingalls entered into a $315 million contract with the Ministry to repair two Venezuelan Navy frigates—ARV Mariscal Sucre and ARV Almirante Brion—at Huntington Ingalls's shipyard in Pascagoula, Mississippi. Among other provisions, the parties' contract contained a mandatory arbitration provision specifying Caracas, Venezuela as the exclusive arbitral forum: per the English translation of the contract, "Arbitration actions shall take place in Caracas, Venezuela."

In 2002, the parties encountered substantial disagreement over cost overruns. Unable to get the Ministry to pay for certain work, Huntington Ingalls filed suit in the Southern District of Mississippi, seeking damages, injunctive relief, and to compel arbitration. The Ministry failed to appear, and the district court clerk entered a default.

After the entry of default, Huntington Ingalls renewed its motion to compel the Ministry to arbitrate the dispute—but requested that the district court order arbitration in Mississippi instead of Venezuela. Alongside its request, Huntington Ingalls submitted two declarations indicating that arbitration in Venezuela would be difficult in light of the political control the Venezuelan government exerted over its courts in the wake of Chávez's "Bolivarian Revolution" of 1999.

First, Keith Rosenn, an American law professor, opined that various revolutionary "reforms" had led to the government "summarily sacking judges" and stocking the bench with provisionally appointed (and politically dependent) replacements. The effect was widespread: in 2000, Rosenn indicated, 64.7% of Caracas's appellate judges, 66.1% of Caracas's first instance judges, and 87.6% of Caracas's municipal judges were provisionally appointed, as were over 90% of all judges nationwide. Such a structure, Rosenn opined, left the Venezuelan judiciary subject to "political pressure and influence from the Chávez Government" and created an "unreasonably high risk of not securing a fair and independent judge" in the country—especially because the Ministry itself is "enormously powerful" in Venezuela.

Second, Manuel Gomez, a Venezuelan lawyer and law professor, opined that the Venezuelan government exerted various forms of undue influence on the Venezuelan judiciary. Venezuelan judges, Gomez indicated, were frequently unable to enforce rulings that conflicted with the interests of the government. Indeed, judges were often met by violence instigated by government officials: Gomez identified that one judge had been shot and killed while enforcing an eviction order one day after Chávez encouraged his followers to "resist any judicial orders that would affect their rights." The political pressure extended to non-court proceedings, as well: Gomez opinedthat, in addition to its control of the judiciary, the Venezuelan government also exerted "prompt and direct influence" over arbitrations in the country.

The district court, apparently crediting Rosenn's and Gomez's declarations, granted Huntington Ingalls's motion and ordered arbitration in Mississippi on the grounds that the "violently unstable political situation in Venezuela has rendered that country an unsuitable forum at this time." The designated arbitral tribunal, in turn, moved the proceedings to Mexico City, Mexico "to ensure the greatest equality between the parties."

Before those arbitration proceedings were completed, however, the Ministry filed an appearance in the district court and moved to vacate the arbitration order or, alternatively, to stay the arbitration. The district court agreed to the latter, staying the arbitration until it could consider the merits of the Ministry's other requests.¹ Before the district court ruled on any other motions, the Ministry's counsel offered Huntington Ingalls $70 million to settle the case, which Huntington Ingalls accepted. As a result, the district court entered an order dismissing the case with prejudice. But the Ministry had not actually authorized its counsel to enter into a settlement—merely to negotiate one. Accordingly, the Ministry retained new counsel and moved to vacate the district court's dismissal order. The district court denied the Ministry's motion and enforced the settlement agreement.

The Ministry appealed, challenging both the district court's decision to enforce the settlement agreement and the district court's earlier refusal to compel arbitration in Venezuela. See Northrop Grumman Ship Sys., Inc. v. Ministry of Def. of the Republic of Venez. (Northrop Grumman I), 575 F.3d 491, 496, 502 (5th Cir. 2009). We agreed with the Ministry as to the settlementagreement and reversed the district court's dismissal order. Id. at 502. But we could not definitively resolve the arbitration question—it had become moot when the ordered arbitration proceedings had terminated without decision. Id. Rather than decide where arbitration should occur in the first instance, we remanded to the district court to analyze whether "present conditions" would make it impracticable to arbitrate in Venezuela, the contract's designated arbitral forum. Id. at 502-03. We gave the district court very specific instructions for that analysis: to avoid arbitrating in Venezuela, we emphasized, Huntington Ingalls would have to show that conditions in the country made arbitration there impracticable in a way that was unforeseeable when the parties entered into the contract. Id. at 503. We did not direct the district court to consider any other factors. Id.

On remand, the district court dutifully conducted the impracticability analysis we directed. See Northrop Grumman Ship Sys., Inc. v. Ministry of Def. of the Republic of Venez., No. 1:02cv785, 2010 WL 5058645, at *1 (S.D. Miss. Dec. 4, 2010). In those proceedings, Huntington Ingalls both referred to Rosenn's and Gomez's earlier declarations and submitted additional declarations further indicating that the political situation in Venezuela would unduly affect the arbitral proceedings. The new declarations focused on the Venezuelan government's unwillingness to enforce arbitral awards against government entities, as well as the unforeseeability of such conditions at the time the parties entered their contract in 1997.

Gomez, supplementing his earlier declaration, maintained that any arbitration proceedings brought by a U.S.-based party against a Venezuelan government entity would "meet enormous resistance and face significant obstacles." That resistance, Gomez stated, was unforeseeable when the parties entered into the contract in 1997 because the "Bolivarian Revolution" made the judiciary "an instrument subject to the [government's] political agenda."

Similarly, Antonio Canova Gonzalez, a Venezuelan lawyer and law professor, opined that an arbitration involving these parties would be subject to significant political pressure by the Political-Administrative Chamber of the Venezuelan Supreme Tribunal of Justice. In particular, Canova Gonzalez opined that, "without a shadow of doubt," that court would reject any attempt to enforce an arbitral award against the Ministry because: the revolutionary government had systematically replaced judges on that court; that court overwhelmingly decided in favor of the Venezuelan government in suits brought by private parties; and that court had, in the previous two years, not found in a private party's favor in any of the 89 contractual cases seeking monetary damages brought against the Venezuelan government.²

Finally, Jose Eloy Anzola, a Venezuelan lawyer and law professor, likewise opined that, based on his survey of post-1999 decisions of the Political-Administrative Chamber, the court was likely to intervene in arbitral proceedings in this case in a way that would "seriously disrupt[]" the arbitration.

Huntington Ingalls further drew the district court's attention to a particular decision by the Political-Administrative Chamber that effectively froze over $350 million of another foreign defense contractor's assets in connection with an arbitration on a $2 million contract.³

In response, the Ministry offered declarations of Venezuelan government officials and lawyers, who opined that Huntington Ingalls...