Chevron Corporation v. The Republic of Ecuador

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 12, 2015 Decided August 4, 2015

No. 13-7103

CHEVRON CORPORATION AND TEXACO PETROLEUM COMPANY,

APPELLEES

v.

THE REPUBLIC OF ECUADOR,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 1:12-cv-01247)

Mark N. Bravin argued the cause for appellant. With him

on the briefs were Eric M. Goldstein and Eric T. Werlinger.

Jeffrey S. Bucholtz argued the cause for appellees. With

him on the brief were Brian Callanan, James P. Sullivan,

Brian A. White, and Caline Mouawad.

Before: GARLAND, Chief Judge, and SRINIVASAN and

WILKINS, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILKINS.

2

WILKINS, Circuit Judge:

For the last twenty years, the Republic of Ecuador and

energy industry giant Chevron Corporation have been locked

in a struggle involving a series of lawsuits related to an

investment and development agreement. The dispute began

in the Ecuadorian court system, where it languished

unresolved for over a decade. It then proceeded to an

international arbitration tribunal, whose verdict in Chevron’s

favor was appealed and sustained at all levels of the Dutch

judiciary. The dispute made it to our shores in an action for

confirmation of the arbitral award before the District Court

for the District of Columbia. The District Court confirmed

the arbitral award, prompting yet another appeal. We now

affirm.

I.

In 1973, Chevron 1 and Ecuador signed an agreement

allowing Chevron to develop Ecuadorian oil fields in

exchange for providing below-market oil to the Ecuadorian

government for domestic use. The deal was set to expire in

1992, and the parties were unable to agree to an extension.

As the expiration date approached, Chevron filed several

breach of contract suits against Ecuador. In 1995, Chevron

and Ecuador signed a settlement agreement conclusively

terminating all rights and obligations between the parties.

The agreement provided for the continuation of the pending

lawsuits.

In 1993, the United States and Ecuador signed a Bilateral

Investment Treaty (“BIT”)—formally known as the Treaty

1

For purposes of this opinion, “Chevron” refers both to the

Chevron Corporation and to its predecessor, Texaco Petroleum Co.

3

Between the Government of the United States of America and

the Government of the Republic of Ecuador for the

Encouragement and Reciprocal Protection of Investment—

which took effect in 1997. Under this treaty, Ecuador made a

standing offer to American investors to arbitrate disputes

involving investments that existed on or after the treaty’s

effective date. J.A. 297, 300. For purposes of the BIT, the

definition of “investment” included “a claim to money or a

claim to performance having economic value, and associated

with an investment.” J.A. 294.

In 2006, Chevron commenced an international arbitration

action before a three-member tribunal based out of The

Hague, claiming that Ecuador had violated the BIT by failing

to resolve its lawsuits in a timely fashion. Ecuador objected

to the tribunal’s jurisdiction, arguing that it had never agreed

to arbitrate with Chevron. The basis of this objection was

Ecuador’s contention that Chevron’s investments in Ecuador

had terminated no later than 1995, two years prior to the entry

into force of the BIT. The tribunal rejected the jurisdictional

challenge, finding that Chevron’s lawsuits were

“investments” within the meaning of the BIT, and, after

determining that Ecuador had delayed disposition of the

lawsuits, ultimately decided against Ecuador on the majority

of the breach of contract claims, awarding Chevron

approximately $96 million. Ecuador challenged the award in

the Dutch court system; the challenge was rejected by the

District Court of The Hague, The Hague Court of Appeal, and

the Dutch Supreme Court.

On July 27, 2012, Chevron petitioned the District Court

to confirm the arbitral award under the Convention on the

Recognition and Enforcement of Foreign Arbitral Awards

(“New York Convention”), which has been incorporated into

the Federal Arbitration Act. See 9 U.S.C. §§ 201-208.

4

Ecuador raised three arguments in opposition: (1) that the

District Court lacked subject-matter jurisdiction under the

Foreign Sovereign Immunities Act (“FSIA”); (2) that

confirmation should be denied under the New York

Convention; and (3) that a stay should be granted until the

Dutch Supreme Court could resolve the then-pending appeal

of the award.

The District Court determined that it had subject-matter

jurisdiction under 28 U.S.C. § 1605(a)(6), which provides that

sovereign immunity does not prevent a suit to confirm an

award made pursuant to an arbitration agreement governed by

an international treaty, because the award was made pursuant

to the BIT and governed by the New York Convention. J.A.

1427-28. The District Court rejected Ecuador’s argument that

the FSIA required the District Court to undertake a de novo

analysis of whether the dispute was arbitrable under the BIT.

J.A. 1428-29. The District Court reviewed the question of

arbitrability, however, as part of its consideration of whether

the confirmation should be denied under the New York

Convention, J.A. 1430-45, and found that the parties had

“clearly and unmistakably agreed” that the tribunal would

resolve such questions. J.A. 1436. Having made this finding,

the District Court engaged in a deferential review of the

tribunal’s arbitrability decision and determined that it was

clearly supported by the text of the BIT. J.A. 1439. The

District Court rejected Ecuador’s argument that confirming

the order was against public policy and denied the requested

stay. J.A. 1439-46. Ecuador filed a timely appeal. We

affirm.

II.

As a general matter, the FSIA grants foreign states

immunity from the jurisdiction of the courts of the United

5

States. 28 U.S.C. § 1604. In enacting the FSIA, however,

Congress enumerated several exceptions to this jurisdictional

restriction. These exceptions “provide[] the sole basis for

obtaining jurisdiction over a foreign state in federal court.”

Argentine Republic v. Amerada Hess Shipping Corp., 488

U.S. 428, 439 (1989); see also Verlinden B.V. v. Cent. Bank of

Nigeria, 461 U.S. 480, 488-89 (1983). At issue in this case is

the arbitration exception, which provides for federal court

jurisdiction “in any case . . . in which the action is brought,

either to enforce an [arbitration] agreement made by the

foreign state with or for the benefit of a private party . . . or to

confirm an award made pursuant to such an agreement to

arbitrate, if . . . the agreement or award is or may be governed

by a treaty . . . in force for the United States calling for the

recognition and enforcement of arbitral awards.” 28 U.S.C. §

1605(a)(6).

The District Court concluded that the jurisdictional

requirements of the FSIA were met because “the Award’s

own language indicates it was rendered pursuant to the BIT”

and “the Award is clearly governed by the New York

Convention.” Chevron Corp. v. Republic of Ecuador, 949 F.

Supp. 2d 57, 62 (D.D.C. 2013). Ecuador argues that the

District Court failed to determine in the first instance that an

arbitration agreement existed, instead deferring to the

judgment of the arbitrator. Had the District Court undertaken

the correct analysis, the argument goes, it would have

determined that Ecuador had never agreed to arbitrate its

dispute with Chevron, thus denying the District Court

jurisdiction to enforce the arbitral award. Chevron primarily

argues that the statute permits jurisdiction so long as the

plaintiff presents a non-frivolous claim that the foreign

sovereign has consented to arbitration.

6

A.

There are two types of jurisdictional authorizations: (1)

“jurisdiction [that] depends on particular factual propositions”

and (2) “jurisdiction [that] depends on the plaintiff’s asserting

a particular type of claim.” Agudas Chasidei Chabad of U.S.

v. Russian Fed’n, 528 F.3d 934, 940 (D.C. Cir. 2008).

Ecuador argues that the § 1605(a)(6) exception requires the

District Court to make three findings: “(1) a foreign state has

agreed to arbitrate; (2) there is an award based on that

agreement; and (3) the award is governed by a treaty signed

by the United States calling for the recognition and

enforcement of arbitral awards.” Appellant’s Br. at 23.

Chevron argues that the exception allows jurisdiction any

time a plaintiff asserts a non-frivolous claim involving an

arbitration award. Appellee’s Br. at 30-31.

For the most part, Ecuador has the better argument, and

has identified the relevant jurisdictional facts. In most

instances, the existence of an arbitration agreement is a

“purely factual predicate[] independent of the plaintiff’s

claim.” Chabad, 528 F.3d at 940. Likewise, the existence of

an award is a factual question that the District Court must

resolve in order to maintain jurisdiction. If there is no

arbitration agreement or no award to enforce, the District

Court lacks jurisdiction over the foreign state and the action

must be dismissed. 2

2

The statute does not require that the District Court determine that

the award is governed by a treaty; if the first two jurisdictional facts

are established, the District Court has jurisdiction so long as the

award “is or may be governed by a treaty.” 28 U.S.C. § 1605(a)(6)

(emphasis added). This element of the jurisdictional authorization

is thus closer to the claim-based jurisdictional test proposed by

Chevron. The distinction is irrelevant for purposes of this case, as

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As the plaintiff, Chevron bears the initial burden of

supporting its claim that the FSIA exception applies. See id.

“[T]his is only a burden of production; the burden of

persuasion rests with the foreign sovereign claiming

immunity, which must establish the absence of the factual

basis by a preponderance of the evidence.” Id. Chevron has

met its burden of production by producing the BIT, Chevron’s

notice of arbitration against Ecuador, and the tribunal’s

arbitration decision. Ecuador does not dispute the existence

of the BIT, Chevron’s notice, or the tribunal’s arbitration

decision, but instead challenges the District Court’s

conclusion that the BIT (or the combination of the BIT and

Chevron’s notice of arbitration) is an arbitration agreement

between Ecuador and Chevron.

B.

Ecuador argues that the FSIA required the District Court

to make a de novo determination of whether Ecuador’s offer

to arbitrate in the BIT encompassed Chevron’s breach of

contract claims. According to Ecuador, if Chevron’s claims

are not covered by the BIT, then Ecuador never agreed to

arbitrate with Chevron, and the District Court consequently

lacked jurisdiction. In Ecuador’s view, the arbitrability

question is therefore a jurisdictional question that must be

addressed by the District Court.

Ecuador conflates the jurisdictional standard of the FSIA

with the standard for review under the New York Convention.

For FSIA purposes, Chevron made a prima facie showing that

there was an arbitration agreement by producing the BIT and

the parties do not dispute that the New York Convention governs

arbitral awards issued pursuant to the BIT.

8

the notice of arbitration. Once Chevron made this showing,

the burden shifted to Ecuador to demonstrate by a

preponderance of the evidence that the BIT and the notice to

arbitrate did not constitute a valid arbitration agreement

between the parties. Cf. Chabad, 528 F.3d at 940. The

jurisdictional task before the District Court was to determine

whether Ecuador had sufficiently rebutted the presumption

that the BIT and Chevron’s notice of arbitration constituted an

agreement to arbitrate. 3

The Supreme Court’s recent decision in BG Group, PLC

v. Republic of Argentina, 134 S. Ct. 1198 (2014), is

instructive on this point. In BG Group, Argentina’s primary

argument was similar to Ecuador’s in the present case. By its

terms, the Bilateral Investment Treaty between the United

Kingdom and Argentina required an investor to litigate its

claims in the local court system before submitting the claims

to arbitration. 134 S. Ct. at 1204. BG Group submitted a

claim to arbitration without observing this process. The

arbitration panel concluded that Argentina had waived the

local litigation requirement and found in BG Group’s favor on

the merits. Id. at 1204-05. When BG Group sought to

confirm the award in the District Court for the District of

Columbia, the District Court deferred to the arbitrators’

3

The District Court eschewed making this determination as part of

its jurisdictional analysis. This was error. The statute requires the

District Court to satisfy itself that the party challenging immunity

has presented prima facie evidence of an agreement between the

parties and that the sovereign asserting immunity has failed to

sufficiently rebut that evidence. There is no need to remand,

however, because the District Court elsewhere found that the BIT

and the notice of arbitration together constituted an agreement

between the parties. See Chevron, 949 F. Supp. 2d at 63 (“The

Court thus finds [Chevron] had a valid agreement to arbitrate under

the BIT.”).

9

determination regarding the local litigation requirement.

Republic of Argentina v. BG Group PLC, 715 F. Supp. 2d

108, 121-22 (D.D.C. 2010). This Court reversed, holding that

“[b]ecause the Treaty provides that a precondition to

arbitration of an investor’s claim is an initial resort to a

contracting party’s court . . . the question of arbitrability is an

independent question of law for the court to decide.”

Republic of Argentina v. BG Group PLC, 665 F.3d 1363,

1371 (D.C. Cir. 2012).

The Supreme Court reversed. The Court “treat[ed] the

document . . . as if it were an ordinary contract between

private parties”—Argentina and BG Group—and concluded

that the parties had intended to allow the arbitrator to

determine whether the local litigation requirement had been

satisfied. BG Group, 134 S. Ct. at 1206 (majority op.). In

doing so, the Court implicitly rejected Argentina’s contention

that its offer to arbitrate only applied to investors who

complied with the local litigation requirement. As the Chief

Justice noted in his dissent, “[t]he majority opinion nowhere

explains when and how Argentina agreed with BG Group to

submit to arbitration. Instead, the majority seems to assume

that, in agreeing with the United Kingdom to adopt [the

arbitration provision] along with the rest of the treaty,

Argentina thereby formed an agreement with all potential

U.K. investors . . . to submit all investment-related disputes to

arbitration.” BG Group, 134 S. Ct. at 1216 (Roberts, C.J.,

dissenting).

While we are mindful of the Chief Justice’s concerns, we

agree with his interpretation of the Court’s opinion. The BIT

includes a standing offer to all potential U.S. investors to

arbitrate investment disputes, which Chevron accepted in the

manner required by the treaty. The FSIA therefore allows

federal courts to exercise jurisdiction over Ecuador in order to

10

consider an action to confirm or enforce the award. The

dispute over whether the lawsuits were “investments” for

purposes of the treaty is properly considered as part of review

under the New York Convention.

C.

Even were we to conclude that the FSIA required a de

novo determination of arbitrability, however, we would still

find that the District Court had jurisdiction. In order to

prevail on its jurisdictional argument, Ecuador would have to

demonstrate by a preponderance of the evidence that

Chevron’s suits were not “investments” within the meaning of

the BIT. This Ecuador has failed to do.

For purposes of the BIT, “‘investment’ means every kind

of investment in the territory of one Party owned or controlled

directly or indirectly by nationals or companies of the other

Party . . . and includes . . . a claim to money or a claim to

performance having economic value, and associated with an

investment.” BIT Article I.1(a)(iii), J.A. 294. Ecuador argues

that the final phrase – “and associated with an investment” –

means that a lawsuit must be associated with an investment

that existed within the effective period of the BIT in order to

qualify as an investment under the BIT. This is a misreading

of the treaty terms for two reasons.

First, Article I.3 provides that “[a]ny alteration of the

form in which assets are invested or reinvested shall not affect

their character as investment.” In conjunction with the BIT’s

non-exhaustive definition of “investment,” Article I.3

suggests that an investment continues to exist until it has been

fully wound up and all claims have been settled. Chevron’s

lawsuits were therefore continuations of its initial investment

in Ecuador and protected by the BIT.

11

Second, Article XII limits the application of the BIT “to

investments existing at the time of entry into force as well as

to investments made or acquired thereafter.” J.A. 300. The

investments referred to by this article are investments as

defined in Article I, and include “a claim to money or a claim

to performance having economic value, and associated with

an investment.” J.A. 294. Ecuador argues that the Article XII

temporal limitation applies both to the claim and to the

investment with which that claim is associated. We disagree.

In our view, Article XII applies only to “investments” as

defined by Article I, and not to the use of the term

“investments” within the definitional paragraph. A lawsuit

that existed at the time of entry into force of the BIT is

consequently an “investment” for BIT purposes so long as

that lawsuit is associated with an investment as generally

defined: “An expenditure to acquire property or assets in

order to produce revenue; the asset so acquired.” BLACK’S

LAW DICTIONARY (6th ed. 1990). Chevron’s breach of

contract lawsuits indisputably were associated with its pre-

BIT investment activities, and the lawsuits indisputably

existed when the BIT entered into force. The lawsuits

themselves were therefore “investments” within the meaning

of the treaty.

The District Court correctly determined that the BIT and

Chevron’s notice to arbitrate satisfied the jurisdictional

requirements of the FSIA. Even if the FSIA required the de

novo review of arbitrability suggested by Ecuador, however,

the District Court would still have properly exercised

jurisdiction because Ecuador failed to demonstrate by a

preponderance of the evidence that Chevron’s lawsuits were

not protected by the BIT.

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III.

Ecuador’s arguments against confirmation of the award

under the New York Convention are largely coextensive with

its arguments related to the District Court’s jurisdiction.

There is no merit to these arguments, and the District Court

properly confirmed the award.

As recognized by the court below, “the [New York

Convention] affords the district court little discretion in

refusing or deferring enforcement of foreign arbitral awards.”

Belize Soc. Dev. Ltd. v. Gov’t of Belize, 668 F.3d 724, 727

(D.C. Cir. 2012); see also Appellee’s Brief Add. 3 (New York

Convention provision setting forth exclusive grounds on

which enforcement of an award may be refused). Ecuador

asserts two grounds on which confirmation of the award

should be denied: Articles V(1)(c) and V(2)(b) of the New

York Convention. Article V(1)(c) provides that an award

may be refused if it “deals with a difference not contemplated

by or not falling within the terms of the submission to

arbitration,” and V(2)(b) allows refusal if “the recognition or

enforcement of the award would be contrary to the public

policy” of the country in which enforcement is sought.

Ecuador’s reliance on Article V(1)(c) is misplaced. The

District Court did not need to reach the question of whether

Chevron’s lawsuits fell within the terms of submission to

arbitration because the BIT allows the arbitration tribunal to

make that determination. As discussed supra, the Supreme

Court has analyzed a similar bilateral investment treaty as if it

were a contract between the sovereign and the investor

corporation seeking to confirm an arbitral award. “Where

ordinary contracts are at issue, it is up to the parties to

determine whether a particular matter is primarily for

arbitrators or for courts to decide. If the contract is silent on

13

the matter . . . courts presume that the parties intend courts,

not arbitrators, to decide . . . disputes about ‘arbitrability.’”

BG Group, 134 S. Ct. at 1206 (internal citations omitted).

The BIT is not silent on who decides arbitrability. Article VI

of the BIT provides that the investor company may submit a

matter to arbitration “in accordance with the Arbitration Rules

of the United Nations Commission on International Trade

Law (UNCITRAL).” BIT Art. VI(3)(a)(iii), J.A. 298. Under

these rules, which the BIT incorporates by reference, “[t]he

arbitral tribunal 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 clause,” and “shall

have the power to determine the existence or the validity of

the contract of which an arbitration clause forms a part.”

UNCITRAL Arbitration Rules, G.A. Res. 31/91 art. 21 (Dec.

15, 1976). Ecuador therefore consented to allow the arbitral

tribunal to decide issues of arbitrability—including whether

Chevron had “investments” within the meaning of the treaty.

See also Oracle America, Inc. v. Myriad Group A.G., 724

F.3d 1069, 1077 (9th Cir. 2013) (“Incorporation of the

UNCITRAL arbitration rules . . . constitutes clear and

unmistakable evidence that the parties agreed to arbitrate

arbitrability.”); Schneider v. Kingdom of Thailand, 688 F.3d

68, 72 (2d Cir. 2012) (“[A] bilateral investment treaty’s

incorporation of the . . . UNCITRAL rules [is] clear and

unmistakable evidence that the parties intended questions of

arbitrability to be decided by the arbitral panel in the first

instance.”) (internal quotation marks omitted). There was no

need for the District Court to independently determine that

Chevron’s suits satisfied the BIT’s parameters once it had

concluded that the parties had delegated this task to the

arbitrator.

Ecuador’s Article V(2)(b) arguments are similarly rooted

in the “erroneous premise” that the BIT does not apply. See

14

Appellant’s Br. at 55-56 (“Finally, the District Court erred by

failing to deny confirmation on public-policy grounds. At the

root of its incorrect analysis was the erroneous premise that

the Republic and Chevron agreed to arbitrate.”). Relying on

this premise, Ecuador identifies two aspects of American

public policy that are purportedly inconsistent with

confirmation of the award. First, Ecuador argues that “the

Award is repugnant to the policy that forum-selection clauses

in agreements between sophisticated parties will be upheld”

because Chevron and Ecuador had contractually agreed that

Chevron’s claims would be litigated in Ecuadorian courts.

Appellant’s Br. at 57-58. Second, Ecuador argues that

confirmation is inconsistent with respect for foreign

sovereignty, claiming that “the Tribunal effectively usurped

the jurisdictional authority of the Ecuadorian judiciary, the

only adjudicative body authorized to hale the Republic into

court to respond to Chevron’s lawsuits.” Appellant’s Br. at

58.

The primary flaw with the first argument is that it

misapprehends the nature of Chevron’s action. Chevron’s

breach of contract claims were brought in Ecuadorian courts,

as required by the initial investment agreement and ratified by

the 1995 settlement agreement. 4 Chevron’s arbitration action

alleged that Ecuador had unduly delayed resolution of those

4

As Chevron notes, the 1995 settlement agreement did not

expressly indicate that the claims would remain in Ecuadorian

courts: “Any and all claims, of any type . . . which are separate

from this agreement and which exist judicially between the parties,

shall continue to be heard before the authorities having the

appropriate jurisdiction.” J.A. 182. While the use of the word

“continue” indicates that the claims were to remain in Ecuadorian

courts (where they were at the time of the settlement agreement),

the language does not plainly foreclose proceedings before other

authorities.

15

claims in violation of the BIT. J.A. 813-14. The issue

initially before the arbitration panel was not whether Ecuador

had breached its contract with Chevron, but instead whether

Ecuador had breached the BIT by failing to resolve the

contract suits in a timely fashion. In signing the BIT, Ecuador

agreed to arbitration of precisely this type of action. See Art.

II(7), J.A. 297 (“Each Party shall provide effective means of

asserting claims and enforcing rights with respect to

investment, investment agreements, and investment

authorizations.”).

A similar consideration forecloses Ecuador’s claim of

jurisdictional usurpation. The Tribunal did not usurp the

authority of the Ecuadorian judiciary; Ecuador ceded that

authority, first by signing the BIT, and then by failing to

resolve Chevron’s legal actions in a timely fashion.

Contrary to Ecuador’s protestations, enforcement of the

arbitral award is fully consistent with the public policy of the

United States, most notably the “emphatic federal policy in

favor of arbitral dispute resolution,” Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (1985).

By signing the BIT, Ecuador agreed to allow independent and

neutral arbitrators to determine whether an investor company

could take advantage of the substantive and procedural

protections in the BIT. Chevron followed the proper

procedure to request arbitration under the BIT, and the

arbitrator determined that it had jurisdiction. Four courts have

also considered and rejected Ecuador’s argument that

Chevron did not have the right to avail itself of the BIT’s

arbitration clause. Ecuador has given us no reason to

conclude that these many authorities ruled in error.

16

IV.

For the foregoing reasons, we affirm the District Court’s

confirmation of the arbitral award to Chevron.

So ordered.