Unión Fenosa Gas, S.A. v. Arab Republic of Egypt

UNIÓN FENOSA GAS, S.A., Plaintiff, v. ARAB REPUBLIC OF EGYPT, Defendant.

Civil Action No. 18-2395 (JEB)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

June 4, 2020

MEMORANDUM OPINION

To stay or not to stay; that is the question. Plaintiff Unión Fenosa Gas, S.A. claims that Defendant Arab Republic of Egypt reneged on its obligation to provide natural gas to UFG's liquefaction plant in that country, forcing the plant to close down entirely. An arbitral tribunal assembled under the auspices of the International Centre for the Settlement of Investment Disputes concluded that Egypt's actions had indeed violated various treaty obligations, and it awarded Plaintiff over $2 billion for the losses it had incurred, one of the largest awards in ICSID's history.

UFG has shifted forums and now seeks this Court's recognition and enforcement of the award. Egypt offers a procedural counter, asking the Court to stay the case until the ICSID rules on its annulment petition there. While the Court is sympathetic to Plaintiff's interest in finally concluding this multi-year dispute, it ultimately finds that the unique considerations of this case warrant imposing a stay here. The Court will therefore grant Egypt's Motion to Stay and deny UFG's Motion for Entry of Default Judgment.

I. Factual and Procedural Background

Plaintiff is a specialized natural-gas corporation organized under the laws of Spain. See ECF No. 1 (Complaint), ¶ 2. In 2000, its predecessor-in-interest entered into a Sale and Purchase Agreement with the national oil company of Egypt (formerly the Egyptian General Petroleum Corporation and now the Egyptian Natural Gas Holding Company). Id., ¶¶ 9,10. Under the SPA, the state-owned oil corporation agreed to supply a certain amount of natural gas to UFG for at least 25 years. Id., ¶ 10. This energy supply would be critical to the economic viability of UFG's proposed natural-gas liquefaction plant to be located in Damietta, a Mediterranean port city in northeast Egypt. Id., ¶¶ 7, 10.

Following the execution of the SPA, UFG built the Damietta Plant — then the largest single-train liquefaction plant in the world — at a cost of approximately $1.3 billion. Id., ¶ 14. Almost since the plant's inception, however, Plaintiff has faced difficulties in procuring the guaranteed supply of natural gas from Defendant. From 2006 through 2012, Egypt systematically undersupplied UFG while continuing to raise gas prices. Id., ¶ 16. By 2013, the supply had been reduced to such unsustainably low volumes that UFG was forced to shut down the Plant. Id., ¶¶ 19-20.

Egypt's alleged violation of the SPA implicated a series of interlocking treaties. First, in 1994, Spain and Egypt entered into a bilateral investment treaty pursuant to which each nation, among other things, "guarantee[d] in its territory fair and equitable treatment for the investments made by investors of the other Party." Id., ¶¶ 21-24; see also Compl., Exh.C (Agreement on the Reciprocal Promotion and Protection of Investments between the Kingdom of Spain and the Arab Republic of Egypt), ¶ 9. Article 11 of the Treaty additionally provides that unresolved disputes among the parties shall be submitted "at the choice of the investor" (in this case, UFG)to one of several potential arbitration bodies, including the ICSID. See Compl., ¶ 27. The ICSID was established via the "ICSID Convention," a multilateral agreement signed by over 160 states — including Spain, Egypt, and the United States — to "facilitat[e] private foreign investment in developing countries." Mobil Cerro Negro, Ltd. v. Bolivarian Republic of Venezuela, 863 F.3d 96, 100, n.1 (2d Cir. 2017). The ICSID provides a "legal framework to resolve disputes between private investors and governments," including the convening of "arbitration panels to adjudicate disputes between international investors and host governments in 'Contracting States.'" TECO Guatemala Holdings, LLC v. Republic of Guatemala, No. 17-102, 2018 WL 4705794, at *1 (D.D.C. Sept. 30, 2018) (alterations and quotation marks omitted).

With its plant closed as a result of Egypt's alleged machinations, UFG filed a request for arbitration with the ICSID in 2014. See Compl., ¶ 31. An ICSID tribunal ultimately conducted a hearing and issued an award on August 31, 2018. Id., ¶¶ 34-35. The tribunal found that: (1) it had jurisdiction over the dispute; and (2) on the merits, Egypt's conduct had, among other things, violated its obligation to provide "fair and equitable treatment" to Spanish investors under the BIT. See id., ¶¶ 36-37; see also Compl., Exh. A (ICSID Award). The Tribunal awarded Plaintiff over $2 billion in damages and $10 million in legal costs, along with both pre- and post-award interest, the latter of which has continued to accrue since the date of the award. See Compl., ¶ 38.

One member of the three-person panel — who formerly served as the State Department's Assistant Legal Adviser for International Claims and Investment Disputes — dissented. See ICSID Award at ECF p. 333. He concluded that the tribunal lacked jurisdiction because UFG had secured the SPA by corrupt means, specifically by bribing someone with influence over the Egyptian government. Id. at 333-37. He also determined that even if the ICSID tribunalretained jurisdiction, UFG's claims failed on the merits, id. at 337-44, and that, in any event, the tribunal had "greatly overstated" the damages amount. Id. at 345.

On October 17, 2018, UFG initiated the present action, seeking recognition of the award and an entry of judgment against Egypt. See ECF No. 16 (Pl. Motion for Default Judgment), Exh. 2 (Declaration of Charlene C. Sun), ¶ 5. Plaintiff successfully served Defendant on November 17, 2018. Id., ¶ 7. The following month, Egypt submitted an application to annul the award in the ICSID, and that same day, the Secretary of the ICSID issued a preliminary stay of enforcement. Id. A duly constituted annulment committee granted Egypt's request for a stay pending the decision on its petition, but the committee made the stay subject to certain conditions, such as Egypt's posting of a security. Id. Defendant failed to comply with the conditions of the stay, and the committee thus terminated it on January 24, 2020. Id. The parties have completed briefing on Egypt's application before the annulment committee, and a final hearing is scheduled for next month. See ECF No. 18 (Def. Motion to Set Aside Entry of Judgment and to Stay), Exh. 6 (Procedural Order) at 17.

Meanwhile in this Court, because Egypt had failed to file an answer or otherwise respond to UFG's Complaint within sixty days of service, the Clerk of Court entered default against Defendant. See ECF No. 15. Plaintiff next moved for default judgment as required by Federal Rule of Civil Procedure 55. Egypt responded with a Motion to Set Aside the Clerk's Default, along with a Motion to Stay this proceeding pending the outcome of its annulment petition. Mercifully streamlining matters, UFG has not opposed the Clerk's vacating of the entry of default and now only contests Defendant's Motion to Stay. See ECF No. 21 (Pl. Opp.) at 2 ("[N]ow that Egypt has appeared in this action, UFG would not object to vacatur of the Clerk'sentry of default provided that the action move forward expeditiously and without any further unjustified delay by Egypt."). This is wise given that a default judgment was quite unlikely here.

II. Jurisdiction

The ICSID Convention requires the United States to "'recognize an award' and 'enforce the pecuniary obligations imposed by that award.'" Teco Guatemala Holdings, LLC, 2018 WL 4705794, at *4 (quoting ICSID Convention art. 54). Accordingly, 22 U.S.C. § 1650(a) - the enabling statue for United States participation in the ICSID Convention - provides:

An award of an arbitral tribunal rendered pursuant to chapter IV of the convention shall create a right arising under a treaty of the United States. The pecuniary obligations imposed by such an 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.

Subsection (b) of § 1650 further grants the federal district courts "exclusive jurisdiction over actions and proceedings under subsection (a) . . . regardless of the amount in controversy."

III. Analysis

As explained above, the only currently contested issue is whether to stay enforcement of the ICSID award pending the decision of the annulment committee. Having already waited years to recover damages for the Damietta Plant fiasco, UFG understandably wants to keep these proceedings moving. Egypt, for its part, seeks to forestall remitting over $2 billion from its coffers.

First up: the ground rules guiding the Court's decision on Defendant's request for a stay. "[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). In deciding whether to grant a stay, courts generally "'weigh competing interests and maintain an even balance' between thecourt's interests in judicial economy and any possible hardship to the parties." Belize Soc. Dev. Ltd. v. Gov't of Belize, 668 F.3d 724, 732-33 (D.C. Cir. 2012) (quoting Landis, 299 U.S. at 254-55). District courts "may not 'order a stay of indefinite duration in the absence of a pressing need.'" Novenergia II - Energy & Env't (SCA) v. Kingdom of Spain, No. 18-cv-1148, 2020 WL 417794, at *2 (D.D.C. Jan. 27, 2020) (alteration omitted) (quoting Belize, 668 F.3d at 731-32).

UFG's Complaint implicates unique concerns because Plaintiff seeks enforcement of an award imposed by an international arbitral body and currently on appeal. Courts "have broad discretion in deciding whether to stay proceedings pending the resolution of independent legal proceedings." Id. (citing Land...