Tatneft v. Ukr.

301 F.Supp.3d 175

Pao TATNEFT, Petitioner/Plaintiff,

v.UKRAINE, Respondent/Defendant.

Civil Action No. 17–582 (CKK)

United States District Court, District of Columbia.

Signed March 19, 2018

Jonathan I. Blackman, Pro Hac Vice, Cleary, Gottlieb, Steen & Hamilton, LLP, New York, NY, Matthew David Slater, Cleary, Gottlieb, Steen & Hamilton, LLP, Washington, DC, for Petitioner/Plaintiff.

Thomas M. Buchanan, Winston & Strawn LLP, Washington, DC, Maria Kostytska, Winston & Strawn LLP, France, for Respondent/Defendant.

MEMORANDUM OPINION

COLLEEN KOLLAR–KOTELLY, United States District Judge

This matter comes before the Court on review of an arbitration award pursuant to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention" or "Convention") and its implementing legislation, 9 U.S.C. §§ 201 – 208. Petitioner Pao Tatneft ("Tatneft" or "Petitioner") seeks recognition and enforcement of the Award on the Merits ("Merits Award") conferred in OAO Tatneft v. Ukraine , an arbitration conducted under the auspices of the Permanent Court of Arbitration, seated in Paris, France, and pursuant to the 1976 Arbitration Rules of the United Nations Commission on International Trade Law ("UNICITRAL") and the 1998 Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine on the Encouragement and Mutual Protection of Investments, otherwise known as the Russia–Ukraine Bilateral Investment Treaty. The arbitral tribunal issued its Merits Award in favor of Petitioner on July 29, 2014, Respondent Ukraine ("Ukraine" or "Respondent") was directed to pay Tatneft 112 million in United States Dollars in damages plus interest. That Merits Award was upheld by the Paris Court of Appeal when Ukraine moved to overturn it.

On March 30, 2017, Tatneft filed its Petition to Confirm Arbitral Award and to Enter Judgment in favor of Petitioner, which is opposed by Ukraine. On June 12, 2017, Ukraine filed a motion to stay proceedings in this Court, pending the outcome of a foreign set-aside proceeding, which was opposed by Tatneft. Subsequently, Ukraine filed both a motion to dismiss the petition and a motion for jurisdictional discovery. Because the Petition and three motions filed by Ukraine are interrelated, they will be considered by the Court together.

For the reasons explained below, the Court shall DENY Respondent's Motion to Dismiss, DENY Respondent's Motion for Leave to take Jurisdictional Discovery, DENY Respondent's Motion to Stay, and HOLD IN ABEYANCE Tatneft's Petition for enforcement of the arbitration award until Tatneft submits additional briefing with regard to the issues raised in Ukraine's Opposition to Tatneft's Petition.¹

I. FACTUAL BACKGROUND

A. Formation of Ukrtatnafta

Pao Tatneft, formerly known as OAO Tatneft, is a "publicly-traded open joint stock company, established and existing under the laws of the Russian Federation." See Pet. ¶ 1.² On July 4, 1995, Tatarstan and Ukraine entered into an agreement to create CJSC Ukrtatnafta Transnational Financial and Industrial Oil Company ("Ukrtatnafta"), a Ukrainian joint stock company that operates the largest oil refinery in Ukraine, with Tatneft, Ukraine and Tatarstan as its three major shareholders.³ See Declaration of Jonathan I. Blackman in support of Petition ("Blackman Decl."), ECF No. 1–3, Ex. A (Merits Award), ECF No. 1–4, ¶¶ 57–59.⁴ Tatneft and Tatarstan were initially slated to make capital contributions of oil-related fixed assets to Ukrtatnafta, but later agreed to make contributions of cash and other assets in 1997 and 1998. Merits Award ¶¶ 61, 174, 176.

In 1998 and 1999, the United States-based Seagroup International, Inc. ("Seagroup") and Switzerland-based AmRuz Trading Co. ("AmRuz") acquired shares in Ukrtatnafta, and together with Tatneft and Tatarstan (the four entities are collectively referred to as the "Tatarstan Shareholders"), they owned a majority 56% of Ukrtatnafta's shares, and they agreed to vote as a bloc. See id. ¶¶ 141, 562 n.903. In January 2007, the Ukrainian Privat Group acquired a 1% interest in Ukrtatnafta. Id. ¶¶ 143, 223, 268. The Privat Group subsequently obtained Ukrainian judgments that purportedly invalidated the 1997 and 1998 shareholder resolutions whereby Tatarstan and Tatneft obtained their interests in Ukrtatnafta, and resulted in the Tatarstan Shareholders being barred from management of Ukrtatnafta and ownership of its shares. Id. ¶¶ 126–28, 147, 156, 159–62, 169–71, 174–76, 221–38, 276–80, 316, 320, 325, 465.

B. Arbitral Tribunal Proceedings

On December 11, 2007, Tatneft sent a Notice of Dispute to Ukraine, requesting negotiations pursuant to Article 9(1) of the Russia–Ukraine Bilateral Investment Treaty ("Russia–Ukraine BIT" or "BIT"). Merits Award ¶ 6; Blackman Decl., ECF No. 1–3, Ex. B (Russia–Ukraine BIT), ECF No. 1–8, Art. 9(1). On May 21, 2008, after trying to resolve the dispute for approximately five months, Tatneft served Ukraine with a Notice of Arbitration and Statement of Claim under UNCITRAL, alleging that Ukraine had violated its obligations with regard to granting legal protection to and disallowing discrimination against investors from Russia, such as Tatneft, under the Russia–Ukraine BIT. Merits Award ¶ 7; Russia–Ukraine BIT Arts. 2, 3(1).

Following written submissions and a hearing, the arbitral tribunal issued a September 28, 2010 decision confirming its jurisdiction over Tatneft's claims (the "Jurisdiction Decision"), and after receiving additional written submissions and documents, the arbitral tribunal held a merits hearing from March 18, 2013 to March 27, 2013, wherein fact and expert witnesses testified. Award ¶¶ 6–46. On July 29, 2014, the arbitral tribunal issued a Merits Award, whereby it concluded that Ukraine's actions resulted in a "total deprivation of [Tatneft's] rights as a shareholder of Ukrtatnafta" and further, that Ukraine had failed under the Russia–Ukraine BIT to provide "fair and equitable treatment" (FET) to Tatneft. Merits Award ¶¶ 464, 412. Ukraine was ordered to "pay [Tatneft] the amount of US$ 112 million as compensation for its breaches of the Russia–Ukraine BIT" along with interest at the U.S. dollar LIBOR rate plus 3% compounded every three months, with further instructions about the accrual of interest. Id. ¶ 642(1)–(3).

C. Proceedings following the Arbitration

On August 27, 2014, Ukraine brought an action before the Paris Court of Appeal in France to annul both the Merits Award and the earlier Jurisdiction Decision. Blackman Decl. ¶ 5. On November 29, 2016, the Paris Court of Appeal rejected Ukraine's annulment request, upheld both the Jurisdiction Decision and the Merits Award, and ordered Ukraine to pay fees and costs to Tatneft. Id. Ukraine filed a subsequent request for appeal, on March 21, 2017, to the French Court of Cassation.

On December 29, 2016, Tatneft sent a letter to Ukraine demanding payment of the Merits Award amount and noting that if payment was not made by February 15, 2017, Tatneft would commence enforcement proceedings. See Blackman Decl., ECF No. 1–3, Ex. C (Dec. 29, 2016 Demand Letter), ECF No. 1–9, at 2. Tatneft filed its Petition to Confirm Arbitral Award on March 30, 2017, seeking recognition of the award in this Court. Ukraine requested that this Court stay its determination of the Petition pending the decision in the French Court of Cassation. Shortly after the briefing on the stay motion became ripe, Ukraine filed its opposition to Tatneft's Petition, and also filed a motion to dismiss and motion for jurisdictional discovery.⁵ Ukraine's opposition to the Petition focuses on alleged doubts regarding the arbitrator's impartiality and independence, and asserts that recognition and enforcement of the award would be contrary to United States' public policy.

In its motion to dismiss Tatneft's Petition, Ukraine argues that this Court lacks subject matter jurisdiction because Ukraine is entitled to foreign sovereign immunity and further, that dismissal is warranted on grounds of forum non conveniens . With regard to the jurisdictional challenge, Ukraine contends more specifically that the arbitration exception in Section 1605(a)(6) of the Foreign Sovereign Immunities Act does not apply because Tatneft is not a "private party" and the award was not made "pursuant to" any agreement to arbitrate. Ukraine moves for permission to conduct jurisdictional discovery in the event that this Court does not grant its motion to dismiss. Petitioner Tatneft opposes all of Ukraine's motions.

II. LEGAL STANDARD

Prior to beginning an analysis of the arguments raised in the motions and the petition which are pending before the Court, it may be useful to briefly set out the legal provisions underlying such analysis, i.e. , the Foreign Sovereign Immunities Act and the arbitration exception thereto, which govern this Court's jurisdiction over Respondent Ukraine, and The New York Convention, which governs enforcement of foreign arbitration awards.

A. Foreign Sovereign Immunities Act and the Arbitration Exception

The Foreign Sovereign Immunities Act of 1976 ("FSIA"), codified at 28 U.S.C. §§ 1330, 1332, 1391(f), 1441(d), and 1602 – 1611, is the "sole basis for obtaining jurisdiction over a foreign state in the courts of [the United States]." Belize Social Development Ltd. v. Government of Belize , 794 F.3d 99, 101 (D.C. Cir. 2015) (quoting Argentine Republic v. Amerada Hess Shipping Corp. , 488 U.S. 428, 433, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989) ). When considering enforcement of an arbitral award against a foreign state, the Foreign Sovereign Immunities Act, 28 U.S.C. §§ 1330, et seq. "is 'the sole basis for obtaining jurisdiction over a foreign state in our courts.' " Nemariam v. Fed. Dem. Rep. of Ethiopia , 491 F.3d 470, 474 (D.C. Cir. 2007) (quoting Argentine Rep. v. Amerada Hess Shipping Corp. , 488 U.S. 428, 434, 109 S.Ct. 683, 102 L.Ed.2d 818 (1989) ). Foreign states enjoy sovereign immunity under the FSIA unless an...