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Vantage Deepwater Co. v. Petrobras America Inc.

United States District Court, S.D. Texas, Houston Division

May 17, 2019

PETROBRAS AMERICA INC, et al, Defendants.


          The Honorable Alfred H. Bennett, United States District Judge.

         Before the Court are Vantage's Petition to Confirm Arbitration Award (Doc. #1), Petrobras's Opposition (Doc. #46 & 65), and Vantage's Reply (Doc. #69). Also, before the Court are Petrobras's Motion to Vacate (Doc. #34 & 53), Vantage's Opposition (Doc. #69), and Petrobras's Reply (Doc. #77 & 78). Additionally, the Court heard oral argument from the parties and received post-hearing briefing (Doc. #138, Doc. #137 & 139). After reviewing the parties' arguments and applicable legal authority, the Court denies Petrobras's Motion to Vacate and grants Vantage's Petition to Confirm.

         I. Background

         This Petition arises out of the arbitration proceedings between Petitioners Vantage Deepwater Company and Vantage Deepwater Drilling, Inc. (together, "Vantage") and Respondents Petrobras America Inc., Petrobras Venezuela Investments & Services, BV, and Petroleo Brasileiro S.A. - Petrobras (together, "Petrobras"), concerning an Agreement for the Provision of Drilling Services ("DSA"). In addition to the DSA, Vantage and Petrobras entered into a Form of Payment and Performance Guaranty ("Guaranty"), which guaranteed Petrobras's obligations under the DSA.

         The eight-year term of the DSA for the performance of offshore drilling services commenced on December 2, 2012, upon delivery of the ultra-deepwater drilling rig, the Titanium Explorer. On October 27, 2014, Vantage and Petrobras executed the Third Novation and Amendment Agreement to the DSA ("Third Novation") to perform drilling services in the Gulf of Mexico. The parties agreed under the Third Novation that all disputes were to be resolved before the International Centre for Dispute Resolution ("ICDR") of the American Arbitration Association ("AAA") in Houston, Texas. Doc. #1, Ex. D at ¶ 24.2.

         On August 31, 2015, Petrobras attempted to terminate the DSA. It was this termination that led Vantage to commence the arbitration proceeding in this case, captioned Vantage Deep-water Co. et al. v. Petrobras America Inc., et al, No. 01-15-0004-8503 (the "Arbitration"), conducted under the auspices of the ICDR of the AAA. Vantage requested that the Arbitration Tribunal (the "Tribunal") award expectancy damages for the remaining portion of the DSA's term wrongfully cancelled by Petrobras. In response, Petrobras argued that the cancellation of the DSA was due to operational failures by Vantage and that the DSA was void or unenforceable for allegedly being procured through bribery.

         The Arbitration merits hearing took place in Houston, Texas, from May 16 through June 1, 2017. Pursuant to the Third Novation, the Tribunal consisted of three arbitrators-the Chairperson, Professor William Park ("Chairman Park"), and one arbitrator appointed by each party. See Doc. #1 at 6 ¶; Ex. D at ¶ 24.2. Judge Charles N. Brower ("Judge Brower") was appointed by Vantage and Mr. James Gaitis ("Mr. Gaitis") was appointed by Petrobras.[1]

         After the conclusion of the Arbitration, the Tribunal issued its ruling (the "Final Award") on June 29, 2018. Doc. #1, Ex. A. The majority (Chairman Park and Judge Brower) found Petrobras "liable for US$ 615.62 million by reason of early termination of the DSA without justification or payment of the amount due for the rest of the Contract term." Id. at ¶ 531. The Final Award further determined that the damages would accrue as of "1 April 2018, to bear interest compounded monthly at a rate of 15.2% and running" through the final payment of the award. Id. at ¶ 534. Mr. Gaitis did not join the majority decision and issued a dissent. Id., Ex. E.

         On July 6, 2018, following receipt of the Final Award and the dissent, Petrobras applied to the ICDR for the withdrawal of the Final Award and removal of its authors. Doc. #34, Ex. 57. The ICDR denied this request. Id., Ex. 104.

         On July 8, 2018, Vantage petitioned this Court under 9 U.S.C. §§ 301-307 ("Chapter 3 of the Federal Arbitration Act") to Confirm the Final Award. See Doc. #1, Ex.1. Subsequently, Petrobras filed a Motion to Vacate the Final Award and a Response opposing confirmation of the Final Award. Doc. #34 & Doc. #46. Petrobras argues that vacatur is appropriate on three grounds under 9 U.S.C. § 10(a). Doc. #34 at 24. Furthermore, Petrobras opposes confirmation of the Final Award arguing that it should be set-aside under two provisions of Article V of the Inter- American Convention on International Commercial Arbitration of January 30, 1975 (the "Inter-American Convention"). Doc. #46 at 9.

         II. Motion to Vacate the Final Award

         A. Legal Standard

         The Federal Arbitration Act ("FAA") reflects a national policy favoring arbitration. Cooper v. WestEnd Capital Mgmt., L.L.C., 832 F.3d 534, 543 (5th Cir. 2016). "In light of the strong federal policy favoring arbitration, judicial review of an arbitration award is extraordinarily narrow" and "exceedingly deferential." Id. at 543-14 (citing Rain CII Carbon, L.L.C. v. ConocoPhillips Co., 674 F.3d 469, 471-72 (5th Cir. 2012)). Courts may vacate an arbitration award "only in very unusual circumstances." Oxford Health Plans L.L.C. v. Sutler, 569 U.S. 564, 568(2013).

         Vacatur is available only for the limited statutory reasons outlined in Section 10 of the FAA. 9 U.S.C. § 10; See Citigroup Global Mkts. Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009) (overruling previous non-statutory grounds for vacatur of an arbitration award and holding that arbitration awards under the FAA may be vacated only for the reasons provided in Section 10). Under Section 10(a), an arbitration award may be vacated: (1) "where the award was procured by corruption, fraud, or undue means;" (2) "where there was evident partiality or corruption in the arbitrators;" (3) "where the arbitrators were guilty of misconduct or of any other misbehavior by which the rights of any party have been prejudiced;" or (4) "where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made." 9 U.S.C. § 10(a)(l-4). The Court does not "conduct a review of an arbitrator's decision on the merits," therefore "arguments concerning the merits are irrelevant" to the Court's "determination of whether there are statutory grounds within Section 10(a) under which the arbitration award should be vacated." Householder Grp. v. Caughran, 354 Fed.Appx. 848, 851 (5th Cir. 2009) (citations omitted). An arbitration award "may not be set aside for a mere mistake of fact or law." Cooper, 832 F.3d at 546 (quoting Rain CII Carbon, L.L.C, 674 F.3d at 472). "The burden of proof is on the party seeking to vacate the award, and any doubts or uncertainties must be resolved in favor of upholding it." Id. at 544 (citing Brabham v. A.G. Edwards & Sons, Inc., 376 F.3d 377, 385 & n.9 (5th Cir. 2004)).

         B. Analysis

         Petrobras moves to Vacate the Final Award based upon 9 U.S.C. § 10(a)(2), (3), and (4). Although Petrobras's briefing discusses at great length the iniquity of the alleged bribery scheme, which it also argued during the Arbitration, [2] Petrobras's arguments concerning the merits of the dispute are irrelevant to the Court's determination of whether there are statutory grounds for vacatur under Section 10(a). See Caughran, 354 Fed.Appx. at 851 (citation omitted) ("Section 10(a) does not provide for vacatur of an arbitration award based on the merits of a party's claim" nor does the Court "have the authority to conduct a review of an arbitrator's decision on the merits.").

         As to the specific statutory grounds, Petrobras puts forth three arguments for vacatur under 9 U.S.C. § 10(a). Doc. #34 at 9-10. Under Section 10(a)(2), Petrobras argues that Judge Brower "refused to act on serious conflicts of interest" and that his tendentious conduct during the Arbitration proceeding revealed actual bias against Petrobras. Id. at 9. Under Section 10(a)(3), Petrobras argues that it was "repeatedly denied the ability to adduce evidence showing that the contract at issue was obtained through bribery," and under 10(a)(4) "that the Majority rendered an incomplete award, which failed to address a key defense." Id.

         1. 9 U.S.C. § 10(a)(2)

         Petrobras contends that Judge Brower exhibited evident partiality which requires vacatur under Section 10(a)(2). Under the FAA, courts may vacate an arbitration award "where there was evident partiality or corruption in the arbitrators." Cooper, 832 F.3d at 545 (citing Bacon, 562 F.3d at 352 (quoting 9 U.S.C. § 10(a)(2)). "A party can establish evident partiality by demonstrating that the arbitrator failed to disclose relevant facts or that he displayed actual bias during the arbitration." Weber v. Merrill Lynch Pierce Fenner & Smith, Inc., 455 F.Supp.2d 545, 549 (N.D. Tex. 2006).

         Petrobras argues that "Judge Brower's close personal relationship with Vantage's counsel is evidence of partiality necessitating vacatur" and that Judge Brower's conduct during the Arbitration proceedings displayed "actual bias favoring Vantage." Doc. #34 at 30, 35.

         a. Relationship with Vantage's Counsel

         When challenging an arbitration award based upon disclosure of an arbitrator's relationship with the parties, it must be shown that the arbitrator had a "significant compromising connection to the parties." Ameser v. Nordstrom, Inc., 442 Fed.Appx. 967, 970 (5th Cir. 2011). "[A]n award may not be vacated because of a trivial or insubstantial prior relationship between the arbitrator and the parties to the proceeding." Positive Software Sols., Inc. v. New Century Mortg. Corp., 476 F.3d 278, 283 (5th Cir. 2007) (en banc).

         "Courts have found that a reasonable impression of partiality is established when the arbitrator has had a direct business or professional relationship with one of the parties to the arbitration." Weber, 455 F.Supp.2d at 552; see also Olson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 51 F.3d 157, 159 (8th Cir. 1995) (finding a reasonable impression of partiality where the arbitrator failed to disclose that his employer did a "substantial amount of business with" a party to arbitration proceedings); Middlesex Mut. Ins. Co. v. Levine, 675 F.2d 1197, 1202 (11th Cir. 1982) (vacatur was appropriate where the arbitrator had "'repeated' and 'significant' business dealings involving thousands of dollars with one of the parties to the arbitration over a period of four or five years"); Thomas Kinkade Co. v. White, 711 F.3d 719, 724 (6th Cir. 2013) ("[w]hen the neutral arbitrator engages in or attempts to engage in mid-arbitration business relationships with non-neutral participants, it jeopardizes what is supposed to be a party-structured dispute resolution process.").

         Here, there are no alleged undisclosed business or financial relationships between Judge Brower and Vantage. Rather, upon his appointment to the Tribunal, Judge Brower disclosed that one of his former law clerks from the Iran-United States Claims Tribunal was a partner at the law firm representing Vantage. Doc. #34, Ex. 44. Petrobras timely objected to Judge Brower's appointment and, after due consideration, the ICDR denied Petrobras's challenge to Judge Brower's appointment. Id., Ex. 49.

         Petrobras now argues that Judge Brower's friendship with his former law clerk created evident partiality which merits vacatur, suggesting that the relationship created an "appearance of bias." Doc. #34 at 31. However, the standard for assessing evident partiality is not the mere appearance of bias. See Positive Software Sols., 476 F.3d at 285 ("[T]he 'mere appearance' standard would make it easier for a losing party to challenge an arbitration award for nondisclosure than for actual bias . . ." and "hold arbitrators to a higher ethical standard than federal Article III judges"). "Evident partiality is a 'stern standard'" and requires "upholding arbitration awards unless bias is clearly evident in the decisionmakers." Id. at 281. Here, Judge Brower's former law clerk was not an advocate representing Vantage during the Arbitration proceeding. But, even if the former law clerk were an advocate in the Arbitration proceeding, this would not be a significant compromising relationship that establishes clear bias in an arbitrator. It is common knowledge in the legal profession that former law clerks regularly practice before judges for whom they once clerked. In re Martinez-Catala, 129 F.3d 213, 221 (1st Cir. 1997). Certainly, the relationship between a judge and his former law clerk is not the type of relationship that would merit vacatur under Section 10(a).

         Furthermore, the case that Petrobras relies upon to argue vacatur under Section 10(a)(2), Thomas Kinkade Co. v. White, 711 F.3d 719, 724 (6th Cir. 2013), involved a substantial business relationship between the arbitrator and one of the parties. The facts of Kinkade are not applicable to this case. Petrobras points to no case, nor has the Court found one, where an arbitration award was vacated for non-business or non-financial relationships (i.e., mere friendships). Doc. #133 at 99. Accordingly, Petrobras has ...

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