TMR Energy Ltd. v. State Property Fund of Ukraine

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 15, 2004 Decided June 17, 2005

No. 03-7191

TMR ENERGY LIMITED ,

APPELLEE

v.

STATE PROPERTY FUND OF UKRAINE,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 03cv00034)

Thomas J. O'Brien argued the cause for appellant. With

him on the briefs was Mark N. Bravin.

Samuel Rosenthal argued the cause for appellee. With him

on the brief were Eliot Lauer and Scott D. Fischer.

Before: GINSBURG, Chief Judge, and TATEL and ROBERTS,

Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The State Property Fund of

Ukraine (SPF) appeals from a judgment in favor of TMR Energy

Limited (TMR), a Cyprian corporation, in an action TMR

2

brought to confirm an arbitration award it obtained against the

SPF in Sweden. The SPF claims the district court should have

dismissed the case either for want of personal jurisdiction

because the SPF did not have minimum contacts with the United

States or because the District of Columbia is a forum non

conveniens. On the merits, the SPF contends the district court

should have refused to confirm the arbitration award because the

arbitrators’ determination of liability exceeded the scope of the

arbitration agreement and violated public policy. We reject

these arguments and affirm the judgment of the district court.

I. Background

In 1991, the year the Soviet Union dissolved and Ukraine

proclaimed its independence, Lisichansk Oil Refining Works

(LOR), a state-owned enterprise, entered into a joint venture

with a Swiss company to upgrade an oil refinery located in the

eastern region of Ukraine. The Swiss company then transferred

to TMR its interest in the joint venture, which was known as

Lisoil.

In 1993, TMR entered into two contracts with LOR — one

that gave TMR and LOR each a 50% stake in Lisoil and another

in which TMR agreed to finance and support the upgrading of

several units at LOR’s refinery in exchange for LOR’s promise

to provide feedstock (crude or partially processed oil product) to

the upgraded units for refining. Lisoil would own some of the

refined oil produced by the upgraded units, and TMR was to be

paid out of the proceeds from the sale of that oil. Later in 1993,

as part of Ukraine’s program of privatization, LOR was

transformed into a joint stock company known as Linos. The

SPF, which had been created in 1992 to implement Ukraine’s

privatization plan, retained a 67% share in Linos on behalf of the

State of Ukraine.

3

For several years Linos continued to meet LOR’s

obligations to Lisoil, but by 1997 Linos was experiencing

financial difficulties and stopped providing Lisoil with its share

of refined oil; as a result, Lisoil could no longer repay TMR.

TMR repeatedly asked Linos to provide Lisoil the refined oil to

which it was entitled under the 1993 contract, but Linos refused.

In 1999 TMR and the SPF entered into a contract in which,

after declaring that the SPF had succeeded to LOR’s 50%

interest in Lisoil, they each agreed “not to undertake any actions

that may damage the interests of [Lisoil,] ... not [to] abet such

actions by a third party and not to [be] inactive in the event of

such actions.” Shortly after the contract was signed, TMR asked

the SPF to fulfill its obligation by causing Linos to turn over to

Lisoil the refined oil that LOR had promised in the 1993

contract. The SPF refused to exert any influence over Linos or

to provide Lisoil the refined oil itself.

TMR continued to demand the SPF either compensate TMR

for its breach of the 1999 contract or find some other solution to

the impasse, but the SPF did not respond. Finally, on May 24,

2000 TMR sent the SPF a letter stating that, if the dispute was

not resolved by June 3, then TMR would initiate arbitration as

provided in the 1999 contract. On July 4 TMR did initiate an

arbitration proceeding in Sweden against the SPF, Linos, and the

State of Ukraine.

The case against the SPF went to a hearing and in May 2002

the arbitrators held the SPF had breached both the 1993 contract

as LOR’s successor-in-interest, and the 1999 contract, to which

it was a signatory in its own right. The arbitrators awarded

TMR $36.7 million in damages, plus interest and costs. In

January 2003 TMR filed a petition for confirmation of the award

in the United States District Court for the District of Columbia.

4

II. Analysis

The SPF argues first that the district court did not have

personal jurisdiction over it, and in any event should have

dismissed the case under the doctrine of forum non conveniens.

On the merits, the SPF renews its substantive challenges to the

arbitrators’ determination of liability.

A. Personal Jurisdiction

Under the Foreign Sovereign Immunities Act (FSIA), 28

U.S.C. §§ 1330, 1602–1611, a foreign state is “presumptively

immune from the jurisdiction of the United States courts,” Saudi

Arabia v. Nelson, 507 U.S. 349, 355 (1993); that presumption is

overcome only if the plaintiff shows that one of the exceptions

to immunity provided in 28 U.S.C. §§ 1605–07 applies. See id.;

28 U.S.C. § 1604. The FSIA confers upon district courts subject

matter jurisdiction as to “any claim for relief in personam with

respect to which the foreign state is not entitled to immunity,”

28 U.S.C. § 1330(a), and personal jurisdiction follows where

proper “service has been made under § 1608.” Id. § 1330(b);

see also Practical Concepts, Inc. v. Republic of Bolivia, 811

F.2d 1543, 1548 n.11 (D.C. Cir. 1987) (“under the FSIA, subject

matter jurisdiction plus service of process equals personal

jurisdiction”).

The SPF does not dispute that this case comes within 28

U.S.C. § 1605(a)(6)(B), the exception to immunity for any

action brought to confirm an arbitration award that “is or may be

governed by a treaty or other international agreement in force

for the United States calling for the recognition and enforcement

of arbitral awards.” See the Convention on the Recognition and

Enforcement of Foreign Arbitral Awards, June 10, 1958, 21

U.S.T. 2517, better known as the New York Convention;

5

Creighton Ltd. v. Government of the State of Qatar, 181 F.3d

118, 123–24 (D.C. Cir. 1999) (“the New York Convention is

exactly the sort of treaty Congress intended to include in the

arbitration exception”). Nor does the SPF argue it was not

properly served with process. That resolves the matter of

personal jurisdiction insofar as the FSIA is concerned, but the

SPF attempts to trump the statute on the ground that the Due

Process Clause of the Fifth Amendment to the Constitution of

the United States (“No person shall be ... deprived of life,

liberty, or property, without due process of law”) requires a

nexus between it and the forum, here the District of Columbia,

where the arbitration award is to be enforced. See International

Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (due process

requires person not present within forum have “certain minimum

contacts with it such that the maintenance of the suit does not

offend traditional notions of fair play and substantial justice”).

The SPF argues it lacks the requisite “minimum contacts”

because it has had no contact at all with, and has no property in,

the United States, let alone the District of Columbia.

This court rejected a similar argument in Price v. Socialist

People’s Libyan Arab Jamahiriya, 294 F.3d 82 (2002). There

we held a foreign state is not a “person” as that term is used in

the due process clause. See id. at 96. We noted first that, “in

common usage, the term ‘person’ does not include the

sovereign,” and went on to observe that it would make no sense

“to treat foreign sovereigns more favorably than ‘States of the

Union,’” which are decidedly not ‘persons’ within the meaning

of the due process clause. Id. (citing South Carolina v.

Katzenbach, 383 U.S. 301, 323–24 (1966)). That is not to say

a foreign state is utterly without recourse but only that, “[u]nlike

private entities, foreign nations [being] the juridical equals of

the government that seeks to assert jurisdiction over them,” have

available “a panoply of mechanisms in the international arena

6

through which to seek vindication or redress” if they believe

they have been wrongly haled into court in the United States.

Id. at 98. In short, it is not to the due process clause but to

international law and to the comity among nations, as codified

in part by the FSIA, that a foreign state must look for protection

in the American legal system. Id. at 97.

Our holding in Price applies only to “an actual foreign

government”; we expressly reserved the question “whether other

entities that fall within the FSIA’s definition of ‘foreign state’ ...

could yet be considered persons under the Due Process Clause.”

294 F.3d at 99–100.* Accordingly, the SPF argues the rationale

of Price does not extend to a mere “agency or instrumentality of

a foreign state” — which is how the SPF portrays itself —

because an agency or instrumentality, unlike a foreign state, is

not the “juridical equal” of the United States.

For its part TMR argues that, pursuant to the standard we

applied in Transaero, Inc. v. La Fuerza Aerea Boliviana, 30

F.3d 148 (1994), the SPF should not be treated as a legal

*

Section 1603(a) of Title 28 defines a “foreign state” to include,

except for the purpose of service of process, “a political subdivision

of a foreign state or an agency or instrumentality of a foreign state as

defined in subsection (b),” which in turn provides:

An “agency or instrumentality of a foreign state” means any

entity—

(1) which is a separate legal person, corporate or otherwise, and

(2) which is an organ of a foreign state or political subdivision

thereof, or a majority of whose shares or other ownership interest

is owned by a foreign state or political subdivision thereof, and

(3) which is neither a citizen of a State of the United States as

defined in section 1332(c) and (d) of this title, nor created under

the laws of any third country.

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personality separate from the State of Ukraine. In Transaero we

held that for the purpose of determining the proper method of

service under the FSIA, an entity that is an “integral part of a

foreign state’s political structure” is to be treated as the foreign

state itself, whereas an entity the structure and core function of

which are commercial is to be treated as an “agency or

instrumentality” of the state. Id. at 151. In this regard TMR

argues the SPF performs “classic government functions,” such

as “implement[ing] national policy,” “issu[ing] regulations

binding on state agencies of executive power,” and

“participat[ing] in the development and conclusion of

international agreements on property and use of state-owned

property.” The SPF, in contrast, emphasizes that it “operates in

the field of commerce and the dispute underlying this litigation

arose out of a commercial transaction,” and contends that its

status is roughly equivalent to that of a state-owned corporation,

which is presumptively considered separate and distinct from the

sovereign. See, e.g., Transamerica Leasing, Inc. v. La

Republica de Venezuela, 200 F.3d 843, 847 (D.C. Cir. 2000).

Regardless whether the SPF performs predominantly

governmental functions and would therefore be treated as the

foreign state itself under the “core functions” test of Transaero,

or should be treated as a state-owned enterprise because this

case arose from a commercial context, we think a different

analysis is indicated where the issue is not service of process

under the FSIA but whether an agency or instrumentality of a

foreign state is entitled to the protection of the due process

clause. In Transaero, we were concerned with the meaning of

the statutory terms “foreign state” and “agency or

instrumentality”; here we must decide whether the SPF is a

“person” within the meaning of the due process clause of the

fifth amendment. To that end we must determine whether the

SPF has a constitutional status different from that of the State of

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Ukraine, a question with respect to which the Supreme Court’s

decision in First National City Bank v. Banco Para el Comercio

Exterior de Cuba (Bancec), 462 U.S. 611 (1983), guides our

way.

Bancec involved an attempt by a bank in the United States

to set off the value of its assets seized by the Cuban government

against a letter of credit it had issued to Bancec, a bank

established and owned by the Government of Cuba but with

“full juridical capacity ... of its own.” Id. at 613. Bancec

claimed that, under the FSIA, its separate juridical status

shielded it from liability for the actions of the Cuban

government. Id. The Supreme Court held the FSIA “was not

intended to affect the substantive law determining the liability

of a foreign state or instrumentality,” and looked instead to

principles of international law and federal common law to

determine whether Bancec could be held liable for the acts of

the Cuban government. Id. at 620–21. At the outset of that

inquiry the Court observed that “government instrumentalities

established as juridical entities distinct and independent from

their sovereign should normally be treated as such,” id. at

626–27, but it then determined that presumption would be

overcome where the foreign state so extensively controlled the

instrumentality “that a relationship of principal and agent is

created,” id. at 629, or where — as in the case before it —

“adher[ing] blindly to the corporate form ... would cause ...

injustice.” Id. at 632.

In Foremost-McKesson v. Islamic Republic of Iran, 905

F.2d 438 (1990), we held the presumption of independent status

detailed in Bancec also applies to the question of subject matter

jurisdiction under the FSIA; that is, a foreign state is amenable

to suit based upon an exception in the FSIA and the acts of its

instrumentality only if the sovereign exerts “sufficient control

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[over the instrumentality] ... to create a relationship of principal

to agent.” Id. at 446–47. We believe the same analysis must

govern whether the SPF is a “person” within the meaning of the

due process clause: If the State of Ukraine exerted sufficient

control over the SPF to make it an agent of the State, then there

is no reason to extend to the SPF a constitutional right that is

denied to the sovereign itself.

The record in this case shows the State of Ukraine had

plenary control over the SPF. The first provision of the

regulations approved in the Resolution of the Supreme Rada

[Parliament] of Ukraine creating the SPF states, “The [SPF] is

a body of the State which implements national policies in the

area of privatization.” The second provision states, “In the

course of its activities, the [SPF] shall be subordinated and

accountable to the Supreme Rada .... The activities of the [SPF]

shall be governed by the Constitution and legislative acts of

Ukraine, the Cabinet of Ministers of Ukraine and these

Regulations.” Further, the SPF’s chairman is “appointed and

discharged by the President of Ukraine subject to the consent of

the Supreme Rada,” and the members of its board must be

“approved by the Presidium of the Supreme Rada.” Finally, the

SPF’s expenses are paid from the budget of the State of Ukraine.

From these structural features it is apparent that the SPF is an

agent of the State, barely distinguishable from an executive

department of the government, and should not be treated as an

independent juridical entity. Therefore, the SPF — like its

principal, the State of Ukraine — is not a “person” for purposes

of the due process clause and cannot invoke the minimum

contacts test to avoid the personal jurisdiction of the district

court.*

*

It is far from obvious that even an independent SPF would be

entitled to the protection of the fifth amendment, see United States v.

10

The SPF next argues minimum contacts with the forum are

a jurisdictional prerequisite under customary international law

if not under the due process clause. We shall assume as much,

but solely for the sake of the argument, which fails nonetheless.

Customary international law comes into play only “where there

is no treaty, and no controlling executive or legislative act or

Verdugo-Urquidez, 494 U.S. 259, 271 (1990) (“aliens receive

constitutional protections [only] when they have come within the

territory of the United States and developed substantial connections

with this country”); see also Jifry v. FAA, 370 F.3d 1174, 1182 (D.C.

Cir. 2004) (“non-resident aliens who have insufficient contacts with

the United States are not entitled to Fifth Amendment protections”),

but TMR has not argued the point and hence we express no view upon

the question. We note only that, although courts often assume the

minimum contacts test applies in suits against foreign “persons,” that

assumption appears never to have been challenged. See, e.g., Afram

Export Corp. v. Metallurgiki Halyps, S.A., 772 F.2d 1358, 1362 (7th

Cir. 1985).

Our holding that the minimum contacts test does not apply also

makes it unnecessary to reach TMR’s alternative contention that the

SPF waived its right to challenge pers onal jurisdiction because the

State of Ukraine is a signatory to the New York Convention. Cf.

Creighton, 181 F.3d at 123 (quoting, with approval, Seetransport

Wiking Trader v. Navimpex Centrala, 989 F.2d 572, 578 (2d Cir.

1993) (“when a country becomes a signatory to the Convention, by the

very provisions of the Convention, the signatory state must have

contemplated enforcement actions in other signatory states”)).

Furthermore, because the SPF acknowledges that it is an “agency

or instrumentality” of the State of Ukraine within the meaning of the

FSIA, we have no occasion to consider whether or under what

circumstances an entity that is not an “agency or instrumentality”

would be without the protection of the fifth amendment because a

foreign state exerts control over it.

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judicial decision.” The Paquete Habana, 175 U.S. 677, 700

(1900); see J. GOLDSMITH & E. POSNER, THE LIMIT S OF

INTERNATIONAL LAW 77 (2005) (“political branches have the

final say about whether and how [customary international law]

applies in the United States and whether or not the United States

will comply with it”). Never does customary international law

prevail over a contrary federal statute. See, e.g., Comm. of U.S.

Citizens Living in Nicar. v. Reagan, 859 F.2d 929, 939 (D.C.

Cir. 1988); United States v. Yousef, 327 F.3d 56, 91 (2d Cir.

2003).

In this case, the controlling federal statute is 28 U.S.C. §

1330(b): “Personal jurisdiction over a foreign state shall exist

as to every claim for relief over which the district courts have

jurisdiction under subsection (a) where service has been made

under section 1608 of this title.” That provision clearly

expresses the decision of the Congress to confer upon the federal

courts personal jurisdiction over a properly served foreign state

— and hence its agent — coextensive with the exceptions to

foreign sovereign immunity in the FSIA. We therefore reject

the SPF’s attempt to condition the jurisdiction of the courts of

the United States upon the “minimum contacts” purportedly

required under customary international law; we hold the district

court properly asserted personal jurisdiction over the SPF based

solely upon the requirements of the FSIA.

B. Forum Non Conveniens

The SPF argues that, even if the district court had personal

jurisdiction, upon considering the public interest and the

interests of the litigants, it should have dismissed this

enforcement action under the doctrine of forum non conveniens,

and remitted the plaintiff to a more appropriate forum. See Am.

Dredging Co. v. Miller, 510 U.S. 443, 447–48 (1994). We may

12

reverse a forum non conveniens determination of the district

court only for a “clear abuse of discretion.” Piper Aircraft Co.

v. Reyno, 454 U.S. 235, 257 (1981).

According to the SPF, the district court clearly did abuse its

discretion because it failed to consider the relevant public and

private interest factors favoring dismissal. See Am. Dredging,

510 U.S. at 448 (listing some factors). The district court need

not weigh any factors favoring dismissal, however, if no other

forum to which the plaintiff may repair can grant the relief it

may obtain in the forum it chose. See El-Fadl v. Cent. Bank of

Jordan, 75 F.3d 668, 677 (D.C. Cir. 1996); see also Piper

Aircraft, 454 U.S. at 254 n.22.

As the defendant, the SPF has the burden of showing there

is another forum adequate to the plaintiff’s case. See El-Fadl,

75 F.3d at 677. Pointing out that TMR has already filed actions

against it in the courts of Sweden and of Ukraine, the SPF

contends those courts are adequate to enforce the arbitration

award. As TMR notes in response, however, only a court of the

United States (or of one of them) may attach the commercial

property of a foreign nation located in the United States. See 28

U.S.C. §§ 1609 (foreign state immune from attachment except

as provided in § 1610), 1610(a)(6) (permitting attachment of

“property in the United States of a foreign state ... used for a

commercial activity in the United States” upon judgment entered

by court of the United States or of a state “based on an order

confirming an arbitral award rendered against the foreign

state”).

The SPF next maintains the district court should have

dismissed this action because the SPF has no assets in the

United States against which a judgment can be enforced. Even

if the SPF currently has no attachable property in the United

13

States, however, it may own property here in the future, and

TMR’s having a judgment in hand will expedite the process of

attachment. In any event, the possibility that the judgment of

the district court may go unenforced does not bear upon whether

that court is an inconvenient forum in which to defend. The SPF

also speculates that TMR’s true motive is to go after the

property of the State of Ukraine, but TMR’s motive is

immaterial and whether TMR could properly attach such

property is not before us.

Because there is no other forum in which TMR could reach

the SPF’s property, if any, in the United States, we affirm the

district court’s refusal to dismiss this action based upon the

doctrine of forum non conveniens.*

C. The New York Convention

The SPF raises three challenges to the arbitration award

assertedly based upon Article V of the New York Convention,

which enumerates the few reasons for which a court may refuse

to enforce an arbitration award and assigns the burden of

persuasion to the party opposing enforcement. See Indus. Risk

Insurers v. M.A.N. Gutehoffnungschutte GmbH, 141 F.3d 1434,

1441–42 (11th Cir. 1998). Because they raise purely legal

issues, we address the SPF’s arguments de novo. Id. at 1443.

Two of the SPF’s challenges are based upon Article V.1(c),

which provides that enforcement of an arbitration award may be

*

Accordingly, we do not consider TMR’s alternative contention

that, contrary to the Second Circuit’s decision In re Arbitration

Between Monegasque de Reassurances S.A.M. v. NAK Naftogaz of

Ukraine, 311 F.3d 488 (2002), the doctrine has no place in an action

to enforce an arbitration award.

14

refused if the “award deals with a difference not contemplated

by or not falling within the terms of the submission to

arbitration, or it contains decisions on matters beyond the scope

of the submission to arbitration.” The SPF first contends the

arbitrators exceeded the scope of their authority by deciding the

SPF was liable under the 1993 agreement, to which it was not a

party. As for the 1999 agreement, to which it was a party, the

SPF argues it assumed therein only Linos’s ownership interest

in Lisoil, not Linos’s obligations under the 1993 agreement;

therefore, the question of liability under the 1993 agreement was

not properly before the arbitrators.

TMR points out that, although the arbitrators first held the

SPF was liable as LOR’s successor-in-interest to the 1993

agreement, they went on to hold the SPF also had duties under

the 1999 agreement both to refrain from any activity that might

damage the interests of Lisoil and to take an active role in

preventing harm resulting from the acts of a third party. In the

latter regard the arbitrators found “not a shred of evidence” that

the SPF took any action in response to Linos’s refusal to turn

over the refined oil to which Lisoil was entitled under the 1993

agreement. Therefore, TMR maintains, and we agree, the

arbitrators’ determination of liability was ultimately grounded

in the 1999 agreement, which was properly before them,

wherefor we have no authority to second-guess their

determination.

The SPF next argues the arbitrators exceeded their

jurisdiction because they refused to enforce the provision of the

1999 agreement requiring TMR to initiate the arbitration process

within 60 days after it had become clear that the parties could

not settle the dispute through negotiation. According to the SPF,

the arbitrators rendered a decision outside the bounds of the

arbitration agreement when they ignored the choice of law

15

provision — which called for the application of Ukranian law —

and instead applied Swedish law to decide the timeliness of

TMR’s filing.

TMR responds that the parties disputed the choice-of-law

point before the arbitrators, who resolved it in favor of TMR,

and the SPF’s challenge to the arbitrators’ decision is not

grounded in one of the bases for non-enforcement listed in

Article V of the New York Convention. We agree. The

arbitrators explained that, as a procedural question, timeliness

was governed by Swedish law, and added that, in any event, “no

Ukrainian law brought to their attention ... would change the

conclusions reached ... regarding the time limit.” As the

Supreme Court held in Howsam v. Dean Witter Reynolds, Inc.,

537 U.S. 79 (2002), a time limitation for invoking arbitration is

the sort of “gateway question,” like waiver and delay, that is

presumptively for the arbitrator, not the court, to decide. Id. at

84–85. The SPF points to nothing in the 1999 agreement that

suggests the parties intended to change that presumptive

allocation of authority.

Finally, the SPF argues this court should refuse to enforce

the arbitration award pursuant to Article V.2(b) on the ground

that it violates public policy. Specifically, the SPF contends it

could not have compelled Linos to deliver to Lisoil the share of

refined oil to which Lisoil was entitled under the 1993

agreement because, from 1996 through the arbitration

proceedings, Linos was in bankruptcy; therefore, such delivery

would have constituted a preference in violation of Ukrainian

bankruptcy law.

This argument attacks a straw man, for the arbitrators did

not say the SPF should have caused Linos to deliver oil to

Lisoil; indeed they did not specify what action the SPF should

have taken in order to satisfy its contractual obligation. Rather,

16

the arbitrators held the SPF intentionally caused Lisoil harm by

doing nothing “to comply with or ... to make Linos ... comply

with” the 1993 agreement. In any event, as TMR observes, the

arbitrators could only presume, and expressly did presume, the

SPF knew of the legal constraints imposed upon Linos by

Ukrainian bankruptcy law when it signed the 1999 agreement

with TMR; therefore, they held the SPF breached the contract by

“put[ting] itself in such a situation of conflicting duties and

choos[ing] to refrain from action” that could have mitigated the

harm to Lisoil’s economic interest.

In sum, the SPF has not shown that Article V of the New

York Convention provides any ground for non-enforcement of

the arbitration award. Accordingly, we hold the district court

correctly entered judgment against the SPF.

III. Conclusion

We hold the district court had personal jurisdiction over the

SPF under the arbitration exception to foreign sovereign

immunity in the FSIA. The minimum contacts requirement of

the due process clause does not apply to the SPF because, as an

agent of the State of Ukraine, the SPF is not a juridical entity

distinct from the State itself, and is therefore not a “person”

within the meaning of the fifth amendment.

We also hold the district court did not abuse its discretion

in denying the SPF’s motion to dismiss under the doctrine of

forum non conveniens nor, when it turned to the merits of the

case, did it err in rejecting the SPF’s challenges to enforcement

of the arbitration award under Article V of the New York

Convention. For these reasons, the judgment of the district court

is

Affirmed.