United States / 17 March 2011 / United States, U.S. Court of Appeals, Second Circuit / Republic of Ecuador v. Chevron Corp. / 10-1020-cv (L), 10-1026 (Con)
Country | United States |
Court | United States, U.S. Court of Appeals, Second Circuit |
Date | 17 March 2011 |
Parties | Republic of Ecuador v. Chevron Corp. |
Case number | 10-1020-cv (L), 10-1026 (Con) |
Source |
online: PACER |
Languages | English |
Summary | When Chevron Corporation and Texaco Petroleum Company (collectively, “Defendants”) commenced arbitration proceedings against the Republic of Ecuador (“Ecuador”), a group of Ecuadorian citizens (“Plaintiffs”) sought a stay of the arbitral proceedings from the United States Court for the Southern District of New York. The Defendants had initiated arbitration against Ecuador pursuant to the arbitration clause in Ecuador’s Bilateral Investment Treaty with the United States (the “BIT arbitration”), seeking, inter alia, a declaration that Chevron was not liable for environmental damage arising out of drilling operations in Ecuador, as well as indemnification for any third-party claims arising from the environmental damage. The arbitration clause in the BIT provided for arbitration pursuant to the Arbitration Rules of the United Nations Commission on International Trade Law (the “UNCITRAL Rules”). In seeking a stay of the BIT arbitration, the Plaintiffs argued that Chevron was precluded from arbitration because of representations it had made in a related but separate action before the District Court. Specifically, the Plaintiffs contended that the District Court dismissed their first suit against Chevron on forum non conveniens grounds solely because Chevron promised to submit to the jurisdiction of an Ecuadoran court and pay any ensuing judgment. In fact, after the Plaintiffs’ first suit was dismissed, they sued the Defendants in Lago Agrio, Ecuador (the “Lago Agrio litigation”). The Lago Agrio litigation was ongoing when Chevron commenced the BIT arbitration, and the Plaintiffs filed the present motion to stay. However, the District Court denied the Plaintiffs’ request to stay the BIT arbitration. The Plaintiffs, now joined by Ecuador (collectively, “Appellants”), appealed the decision of the District Court, arguing that Chevron, having previously agreed to litigate against the Plaintiffs in Ecuador, was estopped from, had waived or otherwise rejected its right to arbitrate under the BIT. Chevron, on the other hand, rejected the merits of the Appellants’ estoppel and waiver claims but also contended that it was for the arbitral panel, rather than a court, to decide those issues in the first instance. The United States Court of Appeals for the Second Circuit affirmed the District Court’s refusal to stay the BIT arbitration, concluding that Chevron and Ecuador had agreed to arbitrate threshold issues such as estoppel and waiver in the first instance and that the BIT arbitration did not undermine or conflict with the Lago Agrio litigation. The Court held that the arbitration clause in the BIT fell under the auspices of the NYC, which governs arbitration agreements that are commercial in nature and either involve a non-U.S. citizen or have some other foreign element. The Court then established that Chevron and Ecuador had entered into an enforceable written arbitration agreement within the meaning of Article II(1) NYC; Ecuador by signing the BIT and Chevron by invoking and consenting to the BIT arbitration provision. The Court then held that Ecuador and Chevron, by incorporating the UNCITRAL Rules, had intended for the arbitral panel to resolve threshold issues concerning estoppel and waiver of the right to arbitrate. The Court was satisfied that by incorporating the UNCITRAL Rules the parties “clear[ly] and unmistakabl[y]” demonstrated their intent to allow an arbitral panel, rather than a court, to determine the validity and enforceability of the underlying arbitration agreement. According to the Court, by incorporating the UNCITRAL Rules (namely Article 21, which provides that an arbitrator “shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the . . . arbitration agreement”), the parties had agreed that the arbitral panel would decide on its own jurisdiction, including any objections as to the existence or validity of an arbitration agreement. The Court also considered and rejected the Plaintiffs’ judicial, equitable and collateral estoppel arguments. |
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