Tatneft v. Ukraine

21 F.4th 829

Pao TATNEFT, Appellee

v.UKRAINE, c/o Mr. Pavlo Petrenko, Minister of Justice, Appellant

No. 20-7091

United States Court of Appeals, District of Columbia Circuit.

Argued October 15, 2021

Decided December 28, 2021

Maria Kostytska argued the cause for appellant. With her on the briefs was Geoffrey P. Eaton.

Mark E. McDonald argued the cause for appellee. With him on the brief were Jonathan I. Blackman and Matthew D. Slater.

Before: Srinivasan, Chief Judge, and Henderson, Circuit Judge, and Edwards, Senior Circuit Judge.

Karen LeCraft Henderson, Circuit Judge:

Pao Tatneft (Tatneft), a Russian company, filed a petition in district court to confirm and enforce its arbitral award against Ukraine. The district court granted the petition, rejecting Ukraine's arguments that the court should have declined to enforce the award under The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), June 10, 1958, 21 U.S.T. 2517, and should have dismissed the petition on the basis of forum non conveniens. As explained infra , we agree with the district court and affirm its judgment.

I. BACKGROUND

In July 1995, the Republic of Tatarstan (Tatarstan) and Ukraine founded the CJSC Ukrtatnafta Transnational Financial and Industrial Oil Company (Ukrtatnafta), a joint-stock company that owns and operates Kremenchug, a Ukrainian oil refinery. Ukrtatnafta had three major shareholders: Tatarstan, Tatneft and Ukraine. Tatneft had close ties to the Russian government and Tatarstan is a Russian republic—i.e., one of Russia's federated states. To ensure equal ownership between Russian and Ukrainian interests, Ukraine owned half of Ukrtatnafta and the two Russian entities, Tatneft and Tatarstan, owned the other half. Securing their respective ownership stakes, Ukraine agreed to contribute the oil refinery, Tatarstan, the rights to its region's oil deposits and Tatneft, $180.9 million in oil-related capital assets. Ukraine contributed the oil refinery but Tatneft and Tatarstan failed to make their promised contributions. Tatneft instead contributed $31 million in cash and had its ownership stake reduced by 57%, as approved by Ukrtatnafta's shareholders.

In 1998 and 1999, Ukrtatnafta sold share offerings to AmRuz Trading Co. (AmRuz) and Seagroup International Inc. (Seagroup). AmRuz and Seagroup agreed to issue promissory notes in exchange for the shares. Media sources have since reported that, at the time of the transaction with Ukrtatnafta, Tatneft executives owned AmRuz and Seagroup. AmRuz, Seagroup, Tatarstan and Tatneft then entered into a Russian voting alliance, eventually formalized through an agreement in October 2006, that controlled 55.7% of Ukrtatnafta's shares.

Beginning in 2001, private and public Ukrainian actors challenged AmRuz and Seagroup's share purchases, arguing that Ukrainian law prohibited the purchase of shares with promissory notes. While this litigation was ongoing, Tatneft purchased AmRuz and Seagroup. After a series of lawsuits, the Kyiv (Ukraine) Economic Court invalidated the share purchases and ordered AmRuz and Seagroup to return their shares to Ukrtatnafta.

A Ukraine conglomerate, the Privat Group, then acquired a small share in Ukrtatnafta. The Privat Group initiated further litigation that resulted in the Economic Court of the Poltava Region, another Ukrainian court, forcing Ukrtatnafta to sell the returned shares at auction. The court did not inform Tatneft, AmRuz or Seagroup about the impending sale. The Privat Group was the sole bidder and purchased the shares.

On May 21, 2008, Tatneft served Ukraine with a Notice of Arbitration and Statement of Claim pursuant to the Russia–Ukraine Bilateral Investment Treaty. See Russia–Ukraine Bilateral Investment Treaty, Russ.-Ukr., Nov. 27, 1998. Tatneft claimed that Ukraine, including the Ukrainian courts, improperly facilitated the Privat Group's acquisition of Ukrtatnafta shares and sought damages for unpaid oil deliveries. In accordance with the Russia–Ukraine Bilateral Investment Treaty, each party appointed an arbitrator. Id. art. 10. The party-appointed arbitrators then appointed the third arbitrator, Professor Francisco Orrego Vicuña.

In an initial jurisdictional proceeding, Ukraine argued that the arbitral tribunal lacked jurisdiction because Tatneft could not raise claims on behalf of AmRuz and Seagroup. The tribunal disagreed and affirmed its jurisdiction of the dispute. The parties submitted merits arguments but before the tribunal issued its final decision, both Tatneft's law firm (Cleary Gottlieb Steen & Hamilton LLP) and Ukraine's law firm (King & Spalding LLP) had appointed Vicuña as an arbitrator in separate matters. The Russia–Ukraine Bilateral Investment Treaty incorporates the United Nations Commission on International Trade Law's (UNCITRAL) arbitration rules. Id. art. 9(2)(c). Under UNCITRAL rules, Vicuña had to notify all parties to the Tatneft-Ukraine arbitration about his subsequent appointments if the appointments raised "justifiable doubts" about his impartiality. UNCITRAL Arbitration Rules, art. 9, G.A. Res. 31/98, U.N. Doc. A/RES/31/98 (Dec. 15, 1976). Vicuña did not inform either party that he had accepted an arbitral appointment from the other party's counsel.

The tribunal issued its "Final Award" in July 2014. Tatneft v. Ukraine , 2017 WL 3311265 (Mar. 30, 2017) (Brower, Lalonde, Vicuña, Arbs.). It concluded that Ukraine acted improperly, primarily due to the Ukrainian litigation's procedural defects, thereby depriving Tatneft of its shares in Ukrtatnafta. It awarded Tatneft $112 million in damages and denied Tatneft's claims for unpaid oil deliveries. Ukraine unsuccessfully attempted to annul the Final Award in the Court of Appeal of Paris, which—as the arbitration panel sat in France—had the power to annul the award under the New York Convention. See New York Convention art. V(1)(e) (award may be "set aside or suspended by a competent authority of the country in which ... that award was made"). In 2017 Tatneft sued to enforce the Final Award, both in the United Kingdom and in the United States District Court for the District of Columbia. See id. art. IV(1) (party may apply "for recognition and enforcement" of award). In district court, Ukraine moved to dismiss Tatneft's suit on the basis of Ukraine's sovereign immunity and under the doctrine of forum non conveniens. The district court rejected both claims. It held that the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1604, did not apply based on the FSIA's arbitration exception, 28 U.S.C. § 1605(a)(6), as well as the waiver exception, id. § 1605(a)(1). Tatneft v. Ukraine , 301 F. Supp. 3d 175, 190 (D.D.C. 2018). Regarding the forum non conveniens ground, it held that "no alter[n]ative forum ... has jurisdiction to attach the commercial property of a foreign nation located in the United States." Id. at 192–93. On interlocutory appeal, Jungquist v. Sheikh Sultan Bin Khalifa Al Nahyan , 115 F.3d 1020, 1025 (D.C. Cir. 1997) (collateral order doctrine extends to denial of motion to dismiss on sovereign immunity ground), this court affirmed the district court on the sovereign immunity claim and declined to exercise pendent jurisdiction of the forum non conveniens claim. Tatneft v. Ukraine , 771 F. App'x 9, 10 (D.C. Cir. 2019) (per curiam), cert. denied sub nom. Ukraine v. Tatneft , ––– U.S. ––––, 140 S. Ct. 901, 205 L.Ed.2d 466 (2020).

On February 13, 2020, Ukraine moved for supplemental briefing on whether AmRuz and Seagroup had illegally purchased their shares with promissory notes. If true, the parties presumably did not consent to arbitrate the dispute pursuant to the Russia–Ukraine Bilateral Investment Treaty. See art. 1 (no consent to arbitrate "illegal" investments). The district court could then deny enforcement under the New York Convention. See New York Convention art. V(1)(c) (court may deny enforcement if parties have not consented to arbitration). The district court denied the motion because Ukraine did not explain its failure to make the argument timely.

The district court then granted Tatneft's petition on the merits, enforcing the arbitral award under the New York Convention. Pao Tatneft v. Ukraine , 2020 WL 4933621 (D.D.C. Aug. 24, 2020). Ukraine had opposed enforcement because Vicuña failed to disclose his outside appointments and thus violated the UNCITRAL rule that he disclose any appointment raising "justifiable doubts" about his impartiality, UNCITRAL Arbitration Rules, art. 9, and because enforcement violated the U.S. policy against illegality, see United Paperworkers Int'l Union, AFL-CIO v. Misco, Inc. , 484 U.S. 29, 42, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987) ("a court may refuse to enforce contracts that violate law or public policy"), as AmRuz's and Seagroup's purchase of their shares via promissory notes allegedly violated Ukrainian law. The district court rejected both arguments. On the arbitrator bias claim, it held that Vicuña did not have an obligation to disclose a "single" arbitral appointment and that he had not evinced any partiality in ruling for Tatneft. Pao , 2020 WL 4933621, at *7–9. On the public policy-against-illegality claim, it held that Ukraine failed to carry its "substantial burden" because it did not identify a specific public policy that enforcement would violate. Id. at *9–10.

Ukraine timely appealed. This court then held the appeal in abeyance pending the district court's decision regarding prejudgment interest. Order of January 19, 2021 in Pao Tatneft v. Ukraine , No. 20-7091 (D.C. Cir. 2021). The district court subsequently awarded prejudgment interest and ordered Ukraine to pay nearly $173 million in damages. Ukraine timely filed an amended notice of appeal.

We have jurisdiction of the August 24, 2020 final order pursuant to 28 U.S.C. § 1291. Our jurisdiction also extends to the interlocutory rulings that preceded the district court's entry of final judgment. Ciralsky v. C.I.A. , 355 F.3d 661,...