Opinion

Opinion issued

March 29, 2012

In

The

Court of

Appeals

For

The

First District

of Texas

————————————

NO. 01-11-00073-CV

———————————

PETROBRAS AMERICA, INC., PAI PRSI TRADING GENERAL LLC,

AND PAI PRSI TRADING LIMITED LLC , Appellants

V.

ASTRA

OIL TRADING NV, ASTRA GP, INC., ASTRA TRADECO. LP LLC, AND

PASADENA REFINERY HOLDING PARTNERSHIP , Appellees

On Appeal from the 129th

District Court

Harris County, Texas

Trial Court Case No. 2010-22326

MEMORANDUM

OPINION

Appellants,

Petrobras America, Inc., PAI PRSI Trading General

LLC, and PAI PRSI Trading Limited LLC, appeal the trial court’s judgment

confirming a final arbitration award rendered against them in favor of appellees,

Astra Oil Trading NV, Astra GP, Inc., and Astra TradeCo

LP LLC. Identifying four issues,

Appellants challenge certain provisions of the confirmation judgment. Appellants assert that the trial court erred

in granting Appellees’ motion to confirm the arbitration award and in denying

their motion for partial vacatur of the award. In support of their contention that certain

provisions of the arbitration award should be vacated, Appellants aver that the

arbitration panel, which rendered the underlying final arbitration award,

engaged in misconduct and exceeded its authority. Appellants also contend that Appellees procured

a portion of the arbitration award by fraud.

We

affirm.

Background Summary

In

September 2006, a joint venture was started between Pasadena Refining System,

Inc. (“PRSI”), a corporation that owns a refinery in Pasadena, Texas, and PRSI

Trading Company LP (“the Trading Company”), an associated partnership, which

supplied the refinery with feed stocks and crude oil. Petrobras America

Inc. (“ Petrobras America”) and appellee, Astra Oil

Trading NV (“Astra Oil”) each owned one-half of the shares in PRSI. A Shareholders Agreement governed PRSI’s

operations.

Petrobras America’s subsidiaries, PAI PRSI Trading General

LLC and PAI PRSI Trading Limited LLC (“the Petrobras

Partners”), owned one-half of the Trading Company. Astra Oil’s subsidiaries, Astra GP, Inc. and

Astra TradeCo LP LLC (“the Astra Partners”) owned the

other half interest. A Partnership Agreement

between the co-owners governed the Trading Company’s operations.

By

2008, substantial disagreements arose between the Petrobras

entities (hereinafter, collectively referred to in the singular as “ Petrobas ”) and the Astra entities (hereinafter,

collectively referred to in the singular as “Astra”) regarding the operation

and management of PRSI and the Trading Company.

On June 19, 2008, Petrobas invoked the

arbitration provisions in the Shareholders Agreement and Partnership Agreement

(collectively, “Agreements”) by filing a demand for arbitration with the

American Arbitration Association. Petrobras claimed that Astra had breached certain

provisions of the Agreements and alleged that Astra had breached its fiduciary

duties owed to the Trading Company.

The

Shareholders Agreement and the Partnership Agreement gave Astra the right “to

put” for sale to Petrobras the interests owned by

Astra in PRSI and the Trading Company. The

Agreements contained pricing formulas to calculate the amount that Petrobras would be required to pay for Astra’s interests

when Astra properly exercised its put rights.

Astra

asserted its put rights under the Agreements, forcing a buyout of Astra’s

ownership interests and leaving Petrobras with

complete ownership of PRSI and the Trading Company. The parties disagreed regarding whether Astra had

validly exercised its put rights. They

also disagreed regarding the proper valuation of Astra’s interests in the joint

venture. These disputes were added to the

arbitration.

On

October 24, 2008, the Arbitration Panel (“the Panel”) issued an interim

determination in which it concluded that Astra had properly exercised its put

rights under the Agreements. The Panel stated

that “[a] ll remaining issues in this arbitration

shall be presented at [the] hearing” set to begin February 3, 2009. This would include a decision regarding when

and how much Petrobras would be required to pay Astra

for its interests.

After

the interim decision, Petrobras amended its

arbitration demand adding, inter alia, “[Astra] must . . . account for any

trading activity conducted by traders seconded to the Trading Company that was

not on behalf of the Trading Company.” Astra answered and asserted a number of

counterclaims.

At

the time, Astra Oil and Petrobras America were

guarantors of the Trading Company’s $500 million line of credit extended by BNP

Paribas. The Trading Company allowed the

credit facility to expire without fully repaying BNP Paribas. As a result, on November 3, 2008, each of the

guarantors on the line of credit — Astra Oil and Petrobras

America — were

required to make guarantee payments to BNP Paribas of approximately $156 million.

To pay BNP Paribas, Astra Oil had funds

transferred from the account of its Swiss subsidiary, AOT Holding Ltd, which

maintains a joint New York bank account with its sister company, AOT Trading AG. Astra Oil directed AOT Holding to wire the

funds directly to BNP Paribas’s New York bank account. AOT Holding wired the funds from the joint

account it held with AOT Trading AG to BNP Paribas’s account.

The

Partnership Agreement provides that the Petrobras Partners

must provide indemnity for “all indebtedness of [the Trading Company] that

Astra may have guaranteed.” Because the Arbitration

Panel’s October 24, 2008 decision effectively assured Astra Oil that it would

eventually recover the price of its put-option rights, Astra asserted a

counterclaim seeking immediate reimbursement of the $156 million guarantee

payment Astra Oil had made to BNP Paribas.

On

November 14, 2008, the Arbitration Panel issued a scheduling order, which

included a deadline for propounding and responding to requests for production

of documents. Recognizing the expedited

nature of the proceedings, the Panel did not permit interrogatories,

depositions, or requests for admission as part of the discovery process. All requests for production of documents were

to be propounded by November 26, 2008, with responsive documents to be produced

by December 17, 2008.

The

parties sent requests for production to one another. In response, Astra produced 60,000 pages of

documents and Petrobras produced over 600,000 pages. Anticipating that Petrobras

would soon have full ownership of PRSI and the Trading Company, Astra also gave

38 boxes of documents to Petrobras containing PRSI’s

and the Trading Company’s tax, accounting, and trade records.

In an

email to Astra’s counsel on January 17, 2009, Petrobras’s

counsel identified a number of discovery items to be addressed before

arbitration, including the following:

Trading records — [ Petrobras and its subsidiaries] do not believe that [Astra]

ha[s] produced trading documents and records for the trades made from September

1, 2006 through approximately July 2008.

I told you there were about 20 trades in which Astra or its affiliates

sold products to the Trading Company.

You asked if I could send you a list of the relevant trades, and I did

so earlier today. [Astra] ha[s] not

produced documents related to the trades/acquisition by Astra and its

affiliates of the products ultimately sold to the Trading Company. You agreed to look into this issue and give

me a response by 10 am on January 19th.

Petrobras was seeking the trading documents to support its breach

of fiduciary claim. Petrobras

asserted that Astra had breached its fiduciary duty by means of loaning, or

“seconding,” its employees to the Trading Company. Petrobras alleged

that these seconded employees engaged in improper trading activities that

amounted to self-dealing by Astra.

Specifically, Petrobras relied on the fact

that, in a number of transactions, seconded Astra employees had purchased

petroleum product for the Trading Company from Astra Oil, which had purchased

the product from an outside source. Petrobras alleged that when it resold the petroleum to the

Trading Company, Astra made a profit. Petrobras asserted that such transactions deprived the

joint venture of profits that it would have realized had the Trading Company

purchased the petroleum product directly from the outside source. Petrobras alleged

that Astra’s outside purchase and resale to the Trading Company of petroleum

products usurped the joint venture’s corporate opportunities and amounted to

self-dealing. It averred that such

conduct constituted a breach of the fiduciary duty that Astra owed the joint

venture.

Petrobras had in its possession documentation regarding

what the Trading Company had paid Astra for the petroleum products. But, as referenced in the above email, Petrobras sought Astra’s trade documents, particularly the

“deal sheets,” showing how much Astra had paid the outside sources for the

petroleum product it later resold to the Trading Company. Petrobras asserted that

it needed the trade documents to support its claim that Astra had usurped an

opportunity for the joint venture and had engaged in self-dealing, thereby

breaching its fiduciary duty.

On

January 19, 2009, Astra’s counsel responded to Petrobras’s

email, in relevant part, as follows:

Discovery Issues : First, I would

note that the Panel’s order regarding discovery states that it shall be

“reasonable in scope and burden, and consistent with the expedited nature of

arbitration.” We believe that a number

of your original requests are inconsistent with this directive, but we produced

a significant amount of information nonetheless. The five additional issues you address below

are, for the most part, beyond the scope of what is reasonable discovery in

connection with this proceeding. In many

instances, these items appear to be mere “fishing expeditions” that are

distractions from the central issues in the case. Nonetheless, I indicated to you that we would

work with you to produce as much of the information as was appropriate and

possible under the circumstances. Your

suggestion in this and other emails that we have intentionally withheld

information is without basis.

. . . .

Trading Records : Our

conversation on January 8, 2009 was the first time your client articulated a

purported claim that Astra’s traders at PRSI [Trading] had made trades from

September 2006 to September 2008 that were for the sole benefit of Astra and

harmed PRSI [Trading], allegedly in breach of Astra’s duty to PRSI [Trading]. January 17 was the first time you identified

the specific trades that you claim are at issue. I have spoken to my client and am told that

producing the entire trading file for some of these trades would be enormously

burdensome, as in some instances the paper trail is several inches to foot

high. We can, however, agree to produce

a summary of each trade that should give you the information you need regarding

the Astra side of those trades, and we will do so this week.

On January

19, 2009, Petrobras filed a motion to compel, requesting¸

inter alia, the Panel to order Astra to “produce all relevant and responsive

documents.” The motion generally asserted

that Astra had not produced documents responsive to Petrobras’s

requests for production and identified specific categories of documents. The motion averred that Petrobras’s

counsel had “expressed concern” to Astra’s counsel “about the dearth of

documents produced by [Astra] regarding trading/hedging activities.” Petrobras did not

specifically mention that it sought to compel the trade documents, or more

specifically “the deal sheets,” which indicate the price at which Astra had

purchased the petroleum product later sold to the Trading Company. Petrobras also

filed a motion for continuance requesting the Panel to postpone the February 3 arbitration

hearing “for at least 90 days” to permit Petrobras to

obtain and analyze the documents that it claimed Astra was wrongfully withholding.

Before

the arbitration hearing, Astra and Petrobras submitted

the witness statements of those witnesses who would testify at the Arbitration. Among those was the statement of Irek Kotula submitted by

Astra. Kotula

stated that he was a trader for Astra and had managed the trading activities

for the Trading Company from September 2006 until March 2008. With respect to the trading activities, Kotula stated, in relevant part, as follows:

To protect the Trading Company, I enacted a very strict

policy to be followed by all traders:

The book to which each trade

belongs had to be established in the moment of doing the deal, and written

clearly on [the] deal sheet.

Any deal that

involved a sale from Astra book [sic] to the Trading Company or vice versa had

to be supported by independent market valuation, preferably from brokers, in

writing supporting the price levels.

Additionally, in order to remove

any possibility of doubt, we decided that in case of purchase by the Trading

Company, we would discount the purchase price below market.

In a case where the Trading

Company was selling to Astra, we did it strictly at market level, and if the

Trading Company was the only possible supplier, we recognized this by paying a

premium to the market.

Most of these deals were

documented, and the documents should all be in the Trading Company deal files

at the Refinery. If traders took

positions as Astra and then the Refinery later had a need for the product, then

above rules applied.

In addition, in order to avoid misunderstandings, two

Trading Company board members — Sergio

Baron from Petrobras and Alberto Feilhaber

from Astra — were

copied on all deals done by the Trading Company. When they had any questions, the traders

provided them with explanations. I

remember only a limited number of deals about which questions were raised and,

in each instance, the explanation was acceptable to Mr. Baron and/or Mr. Feilhaber .

From the beginning, Petrobras

had their own trader in the Trading Company, who was always involved in major

decisions and was aware of all third-party trading Astra was doing, as well as

deals involving trades between Astra and Trading Company. Prior to this arbitration, I have never heard

a word of dissent or complaint at the operating trade level of the Trading

Company regarding any of Astra’s trades.

This includes the present head of Trading Company’s trading team,

Fernando Assad, who works for Petrobras .

Astra also

submitted the witness statement of Alberto Felhaber ,

its Vice President for Latin America Trading.

With respect to the trades involving seconded Astra employees, Feilhaber stated, in relevant part, as follows:

To the best of my knowledge, at no time during the period

between September 2006 to September 2008, did any trader make a trade for

Astra’s sole benefit that could have been made for the benefit of PRSI.

The traders were given specific instructions regarding

how trades were to be conducted. A copy

of the trading policies developed and the board minutes are attached

[hereto]. In addition, other rules were

put in place to insure that any trade was communicated to the head of trading

for Petrobras , Sergio Baron. In this way, we insured that all

opportunities were provided first to PRSI.

I am not aware of any instance in which Astra took advantage of a trade

that PRSI could have done and wanted to do.

Petrobras submitted the statement of its employee, Fernando

Assad, who had worked as a trader for the Trading Company since April

2007. Assad stated that he believed it

was a conflict of interest for Astra to sell product to Trading Company. He also stated that Astra benefited from the

sales. He gave examples of two types of

transaction in which the Trading Company paid more for a product purchased from

Astra than if it had purchased the product directly from the market. Assad averred as follows with regard to the trade

documents Petrobras sought to obtain from Astra:

I believe that [Astra’s] traders were making trades that

benefited [Astra] at the expense of the Trading Company. This is one of the reasons that all of the

trading records have been requested from [Astra]. These records will help show whether the

trades made by [Astra] were appropriate and in the best interest of the Trading

Company. [Astra] may have profited from

trades that it should not have profited from, as the Trading Company could

[have] made those trades directly.

. . . .

To determine the full impact and damage caused by

[Astra’s] traders and their conflicts of interest, I need to see additional

information about the specific trades . . . .

I need to see the documentation related to [Astra’s] purchase of the

products at issue, before [Astra] sold those products to the Trading Company.

Without

explanation, the Arbitration Panel denied Petrobras’s

motion to compel production of documents and its motion for continuance of the

arbitration hearing. Petrobras

moved for reconsideration, but the Panel also denied that motion.

Beginning

on February 3, 2009, the Arbitration Panel conducted hearings lasting eight

days to determine Petrobras’s claims and Astra’s

counter-claims. The parties presented 19

live witnesses and over 500 exhibits.

After

the hearings concluded, Petrobras and Astra filed

post-hearing opening and response briefs.

In its opening post-hearing brief on pages 47 to 49, Petrobras

identified a number of issues that had not been raised in the arbitration

proceeding. Petrobras

wrote, “Unwinding a joint venture is complicated. Before the Panel issues a Final Award

requiring a closing on the Minority Puts, the parties must address several

outstanding issues.” These issues

included tax-related matters, a loan from Astra Oil to the Trading Company, and

whether Astra was required to provide to Petrobras

various indemnities, representations and warranties as part of the put

transaction.

The Arbitration

Panel issued its Final Award of Arbitrators (the “Award”) in a 70–page ruling

on April 10, 2009. The Award determined all

claims and requests for relief made by the parties. The Panel denied all of Petrobras’s

claims against Astra; that is, it denied Petrobras’s

breach of contract and breach of fiduciary duty claims.

The

Award also included a provision entitled “Further Discovery,” which provides as

follows:

[ Petrobras ] contend[s] that [Astra]

must produce additional documents before the Panel can enter an award regarding

[ Petrobras’s ] breach of contract claims. More broadly, [the Petrobras

entities] argue that [Astra has] abused the discovery process and must produce

additional documents before the Panel can issue the award. [The Astra entities] respond to these claims

at length and argue that these discovery complaints are unfounded and meant to

delay the proceedings.

The Panel

concludes [ Petrobras’s ] contentions on these

discovery matters are without merit and that further discovery is not

warranted. The parties agreed to

arbitrate under the International Arbitration Rules of the ICDR, not litigate

in a court of law with full-blown judicial discovery procedures. Indeed, the agreements to arbitrate agreed

upon by the parties in this particular case provided for expedited arbitration, requiring that the award be made within

sixty business days of the demand for arbitration. After the Panel issued its Determination on

those threshold issues, and held a procedural hearing, the Panel issued its

Pre-Hearing Order No. 3 on November 17, 2008, to govern further proceedings,

including discovery. That Order provided

in relevant part: “All document discovery sought in this matter shall be

reasonable in scope and burden, and consistent with the expedited nature of

arbitration.” The Order also set a

deadline of January 6, 2009 for the completion of fact discovery, and provided

that any motions to compel be filed so that the fact discovery cutoff could be

preserved. This tailored Order regarding

discovery is consistent with the ICDR’s International Arbitration Rules (which

the parties stipulated would apply) and the ICDR Guidelines for Arbitrators

Concerning Exchanges of Information, which apply to all ICDR arbitrations

commenced after May 31, 2008. Those

Guidelines provide, in relevant part, that “[t]he tribunal shall manage the

exchange of information among the parties in advance of the hearings with a

view to maintaining efficiency and economy.”

The Panel

also finds that the discovery authorized here was fully consistent with the

scope of discovery authorized by the Rules (see Rules, Articles 16.1, 19 and

36), and afforded all parties a reasonable and fair opportunity to prepare

their cases for hearing. The parties report that after Pre-Hearing Order No. 3

was issued, they reviewed “millions of pages of documents in several languages”

and produced over 660,000 pages of documents to each other. After reviewing parties’ arguments, the Panel

concludes that the document discovery permitted in this arbitration was fully

consistent with the applicable Rules, and ICDR Guidelines, and was extensive by

the standards customarily applicable in international arbitrations. We further find that the [Astra entities] have

complied with their discovery obligations and that no further discovery should

be ordered. We also find that the

additional discovery sought by [ Petrobras ], if

permitted, would unreasonably delay the parties’ ability to obtain a Final

Award in this arbitration for no persuasive or necessary reason. . . .

The Award also

contained a provision entitled, “Alleged Improper Trading” in which the Panel

held as follows:

[The Petrobras entities]

contend that [the Astra entities] breached their duties under the agreements

because respondents improperly profited from product trades its traders made

with the trading company. The evidence

indicates, however, that the parties were well aware that [Astra’s] traders,

from time to time, traded directly with the trading company,

and that Petrobras ’ Sergio Baron received deal sheets

for such trades. In any event, the Panel

concludes that claimants have not shown that [Astra] breached any contractual

or other duties nor that any damages were caused by these trades. Accordingly, [the Petrobras

entities’] claims based on the [Astra’s] trading activities are denied, and are

hereby dismissed with prejudice.

The

Award required the Astra entities to transfer their ownership rights in PRSI

and in the Trading Company to Petrobras no later than

April 27, 2009. In exchange, the Petrobras entities were required to make several payments

to the Astra entities, totaling $639,166,258.90, to be paid as follows:

·

Petrobras America must pay

to Astra Oil the sum of $295,629,834, plus $8,301,293 in pre-Award interest, by

April 27, 2009, for [Astra Oil’s] interest in the PRSI refinery;

·

The Petrobras Partners

must pay to the Astra Partners $85,367,385 on September 17, 2009, and

$85,367,384 on September 17, 2010, for the subsidiaries interests in the

Trading Company. Petrobras

America is required to guarantee the payments of the subsidiaries;

· The Petrobras Partners must pay to Astra Oil the indemnity

obligation of $156,442,878.93, plus $3,364,593 in pre-Award interest, by April

27, 2009. This is reimbursement to Astra

Oil Trading for a payment it made to the Trading Company’s financing bank

pursuant to a guarantee of the Trading Company’s debts given by Astra Oil;

· The Petrobras entities shall pay to the Astra entities, by

April 27, 2009, the sum of $3,927,140 to reimburse the Astra entities for their

legal fees incurred in connection with the arbitration, an additional $732,501

to reimburse the Astra entities for their related legal expenses, and

$33,249.97 to reimburse the Astra entities for amounts they overpaid to the

International Centre for Dispute Resolution; and

·

All sums not paid when due under

the Award shall accrue post-Award interest at a rate of 5% compounded annually

from and after the date the sums were due.

The Award

also ordered that all of Astra’s ownership interests in PRSI and the Trading

Company “shall be deemed transferred” to the respective Petrobras

entities by April 27, 2009.

The

Award addressed the additional issues raised by Petrobras

on pages 47 to 49 in its opening post-hearing brief. In this regard, the Award provides as

follows:

The parties disagree concerning the manner and timing of

completing the Minority Put transaction, with [ Petrobras ]

insisting that several additional issues must be addressed prior to any

closing, (Claimants’ Post-Hearing Op. Br., 47 – 49), and respondents insisting that no remaining

issues exist which should cause any further postponement of the closing.

We have

previously held [in the interim Award], and confirm herein, that respondents

effectively exercised the Minority Puts on July 1, 2008. Articles 5.3 and 9.4 of the Shareholders’

Agreement and Partnership Agreement, respectively, contemplate that the

resulting Minority Put transaction should have been closed within ninety days

of the date of the decision giving rise to the exercise of the Minority Put,

i.e., by mid-September 2008. This has

not happened. Rather, it is now April

2009, no·amounts have been paid on the Minority Put

transaction by claimants, and claimants now seek to delay any closing — and their payment — for some unspecified

additional period of time to pursue various additional closing-related issues,

none of which are pleaded in their Second Amended Demand for Arbitration.

(Compare Second Amended Demand with Claimants, Post-Hearing [Brief], 47 – 49.) We find that such additional delays are not

permissible under the relevant agreements.

The Award also

discussed Article 5.3 of the Shareholders Agreement, which provides,

At the Minority Put Closing, Astra shall cause the

following to occur: ( i ) delivery of all the shares of

stock and Ownership Interest in PSRI . . .,

duly endorsed with such endorsements guaranteed, free of all liens, security

interests and encumbrances, and (ii) such other documents and assignments as Petrobras may reasonably request.

At the Minority Put Closing, Petrobras

shall cause the following to occur: ( i ) payment of

the Minority Put Price, (ii) the release or indemnity of any and all

indebtedness of PRSI that Astra may have guaranteed or credit enhanced . . . ,

(iii) such other documents and assignments as Astra may reasonably request. In addition, Astra and Petrobras

shall sign such other documents and assignments as the other Shareholder

reasonably requests.

The Partnership Agreement contains a similar provision in

Article 9.4.

With regard

to these provisions, the Panel stated in the Award as follows:

We find that the provisions of Article 5.3 of the

Shareholders’ Agreement and the corresponding provision in Article 9.4 of the

Partnership Agreement, evidence the intent of the parties that the completion

of the Minority Put transaction was intended to finalize simultaneously all

matters referenced therein related to transfer of the interests being sold to

claimants as a result of the exercise of the Minority Puts.

Accordingly,

no later than April 27, 2009, the parties shall comply with all additional

requirements of Article 5.3 of the Shareholders’ Agreement and Article 9.4 of

the Partnership Agreement in addition to the matters discussed above in [the]

sub-paragraphs [pertaining to payment and transfer of ownership interests],

except to the extent inconsistent with the express provisions of this

Award. Any disputes related to

performance of any of the additional matters referenced in this subparagraph

[], including any of the issues raised at [pages 47 to 49 of Petrobras’s post-hearing brief], shall not be grounds to

delay performance of any of the obligations specified above in sub-paragraphs

[regarding payment and transfer of ownership interests], but rather, if any

such dispute cannot be resolved by agreement of the parties, shall be resolved

in accordance with the dispute resolution provisions of the Shareholders

Agreement and Partnership Agreement.

Astra timely

transferred its ownership interests to Petrobras on

April 27, 2009, but Petrobras refused to abide by the

Award and pay Astra.

Astra filed

suit in federal court seeking judicial confirmation of the arbitral award. Petrobras filed a

motion for partial vacatur and modification of the

Award. [1] Petrobras asserted

that the Award should be vacated because the Panel “exceeded its powers” by

requiring Petrobras to close the put rights for PRSI

and the Trading Company without requiring the Astra entities to deliver their

books and records, which Petrobras had requested. [2] Petrobras also asserted

that the Panel was “guilty of misconduct” because it refused to postpone the

arbitration hearing to permit more discovery . [3]

On March 10, 2010, the federal district

court confirmed the Award and denied Petrobras’s

motion for partial vacatur and modification. [4] The federal district later granted Petrobras’s motion to dismiss the suit for lack of subject

matter jurisdiction and vacated its March 10, 2010 opinion confirming the

Award.

Astra filed

this action in state district court seeking judicial confirmation of the

Arbitration Award. As it had in the

federal action, Petrobras filed an application for

partial vacatur and modification of the Award. Petrobras premised

its vacatur application on section 10(a) of the

Federal Arbitration Act. [5] Petrobras requested

the trial court to vacate the portions of the award denying Petrobras’s

breach of fiduciary claims and its request for additional discovery. Petrobras argued

that the Panel was guilty of misconduct by refusing to postpone the hearing and

compel the production of the trade documents, specifically, the “deal sheets,” showing

the price at which Astra had purchased the product before reselling it to

Trading Company. Petrobras

argued that the trade documents were necessary to support its breach of

fiduciary duty claims against Astra. It

asserted that the documents would show Astra had usurped a corporate

opportunity for the Trading Company to make a profit. Petrobras pointed

to correspondence obtained in another suit between the parties confirming that

trade folders exist for transactions in which Astra Oil purchased petroleum

from a third party and then resold it the Trading Company. Petrobras asserted

that these documents would reveal whether Astra’s “dealings with the joint

venture were fair.” Petrobras

also points to an email obtained in another suit sent by Astra Oil Trading’s

president, Mike Winget , stating that the Astra

traders seconded to the Trading Company had not been “stellar performers” and

that he would “not say more in print!” Petrobras argued in its vacatur

application that this indicated wrongdoing by the seconded traders. More precisely, it asserted that it showed

the traders engaged “in improper conduct constituting a breach of the

contractual fiduciary duties owed to [the Petrobras

entities].”

As it had in

federal court, Petrobras also claimed that the Panel

exceeded its authority “by re-writing the closing provisions in the Shareholder

Agreement and the Partnership Agreement.”

Petrobras relies on the fact that “[t]he Award

orders [Astra] to close on the purchase of [ Petrobras’s ]

PRSI stock and ownership interest in the Trading Company without obtaining the

documentation (i.e., the corporate books and records of PRSI and the Trading

Company) [Astra] must deliver under the Agreements.” Petrobras further

alleges that they had asked Astra to deliver these documents but it “refused to

do so.”

Petrobras further alleged that the portion of the Award

ordering the Petrobras Partners

to pay Astra Oil $156,442,878.93 to indemnify it for paying part of the Trading

Company’s debt owed to BNP Paribas should be vacated because that portion of

the Award was procured by fraud. In this

regard, Petrobras asserted that, since the

arbitration hearing, Petrobras had learned that Astra

Oil Trading had not paid the funds to BNP Paribas. Rather, the funds had been wire transferred to

BNP Paribas’s account from the joint bank account of AOT Trading AG and AOT

Holding Company Limited. Petrobras argued that Astra Oil was the guarantor on the

line of credit with BNP Paribas, and the indemnity obligation was dependent on Astra

Oil’s payment of the obligation. It

argued that because Astra Oil had not made the payment, it was not entitled to

indemnity. Petrobras

also asserted that Astra Oil had procured the indemnity by fraud because it had

represented throughout the arbitration proceedings that it had repaid the funds

to BNP Paribas.

After

hearing, the trial court confirmed the Arbitration Award; denied Petrobras application for partial vacatur

and modification; and signed a final judgment incorporating the amounts awarded

by the Arbitration Panel. [6] Petrobras now appeals

the judgment.

On appeal, Petrobras asserts that the trial court erred in confirming

the Award and in denying Petrobras’s request for

partial vacatur .

To support reversal of the trial court’s judgment, Petrobras

raises the same three issues on appeal as it presented in the trial court to

oppose confirmation and to support partial vacatur of

the Award. In its challenge to the trial

court’s final judgment, Petrobras asserts as follows:

·

The portions of the Award denying Petrobras’s breach of fiduciary duty claims and request for

further discovery should be vacated. The

Arbitration Panel engaged in misconduct when it refused to postpone the

arbitration hearing and compel the production of documents, particularly the

trade documents disclosing the price at which Astra Oil purchased product

before reselling it to the Trading Company.

·

The portion of the Award interpreting the

closing provisions in the Agreements should be vacated because it “rewrites”

the provisions. In so doing, the Panel

exceeded its authority.

· The

portion of the Award ordering the Petrobras Partners to

indemnify Astra Oil should be vacated because Astra misrepresented to the Panel

that it had made the payment on which the indemnity was based. Thus, the indemnity award was procured by

fraud.

Scope and Standard of Review

Petrobras sought partial vacatur

of the Award based solely on the provisions of section 10(a) of the FAA. The parties agree that the FAA governs this

case.

An

arbitration award must be confirmed unless it is vacated, modified, or

corrected pursuant to one of the limited grounds in sections 10 and 11 of the

FAA. See 9 U.S.C. §§ 9–11; see also Roehrs v.

FSI Holdings, Inc ., 246 S.W.3d 796 , 805–06 (Tex. App. — Dallas 2008, pet. denied); Hasbro, Inc. v. Catalyst USA, Inc. , 367

F.3d 689 , 691 – 92

(7th Cir. 2004) (“Confirmation of an arbitration award is generally routine”). Section 10(a) of the FAA authorizes courts to

vacate arbitration awards in four circumstances:

(1) where the award was procured

by corruption, fraud, or undue means;

(2) where there was evident

partiality or corruption in the arbitrators, or either of them;

(3) where the arbitrators were guilty of misconduct in

refusing to postpone the hearing, upon sufficient cause shown, or in refusing

to hear evidence pertinent and material to the controversy; 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). The party moving to vacate an arbitration

award has the burden of proof. Lummus Global Amazonas, S.A. v. Aguaytia Energy del Peru, S.R .

LTDA , 256 F. Supp. 2d 594, 604 (S.D. Tex.

2002).

We

apply de novo review to a trial court’s decision confirming an arbitration

award, recognizing that the statutory grounds for vacatur

under the FAA are limited. Thomas v. Cook , 350 S.W.3d 382, 392

(Tex. App. — Houston

[14th Dist.] 2011, pet. denied); see also

Hall Street Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576 , 582–89, 128 S. Ct.

1396 , 1402 – 06

(2008). In our analysis, we review the

entire record. Ouzenne v. Haynes , No.

01–10–00112–CV, 2011 WL 1938430 at *1 (Tex. App.—Houston [1st Dist.] May 12, 2011, no pet.) ( mem . op.).

An

arbitration award has the same effect as a judgment of a court of last resort;

accordingly, all reasonable presumptions are indulged in favor of the award,

and the award is conclusive on the parties regarding all matters of fact and

law. Ouzenne ,

2011 WL 1938430 , at *1 (citing CVN Grp ., Inc. v. Delgado , 95 S.W.3d 234, 238 (Tex. 2002)).

Review of an award is so limited that

even a mistake of fact or law by the arbitrator in the application of

substantive law is not a proper ground for vacating an award. Id. (citing

Crossmark , Inc. v. Hazar ,

124 S.W.3d 422, 429 (Tex. App. — Dallas 2004, pet. denied)).

Misconduct by the Panel

In their

second issue, Petrobras asserts that the trial court should

have vacated the portions of the Award denying its claims and its request for

additional discovery. Petrobras contends that the Arbitration Panel engaged in

misconduct when it refused to postpone the arbitration hearing and compel production

of documents relevant to Appellants’ claims.

Petrobras summarizes its argument with respect

to this issue as follows:

Despite conclusive proof that Astra intentionally

withheld relevant and responsive documents bearing directly on Petrobras’s fiduciary-duty claims, the Panel refused to

postpone the final arbitration hearing and compel the production of those

documents Petrobras needed for its claim. Thus, the panel deprived Petrobras

of a fundamentally fair hearing and committed misconduct.

FAA

Section 10(a )( 3) provides that an arbitration award

may be vacated “where the arbitrators were guilty of misconduct in refusing to

postpone the hearing, upon sufficient cause shown . . . or of any other

misbehavior by which the rights of any party have been prejudiced.” 9 U.S.C. § 10 (a )( 3). “To constitute misconduct requiring vacation

of an award, an error in the arbitrator’s determination must be one that is not

simply an error of law, but which so affects the rights of a party that it may

be said that he was deprived of a fair hearing.” Laws v.

Morgan Stanley Dean Witter , 452 F.3d 398, 399 (5th Cir. 2006) (citing El Dorado Sch. Dist. No. 15 v. Cont’l Cas . Co ., 247 F.3d

843 , 848 (8th Cir. 2001); see also Apex

Fountain Sales v. Kleinfeld , 818 F.2d 1089, 1094

(3d Cir. 1987) (“Under Federal law, misconduct apart from corruption, fraud, or

partiality in the arbitrators justifies reversal only if it so prejudices the

rights of a party that it denies the party a fundamentally fair hearing.”).

As discussed,

Petrobras alleged that Astra breached its fiduciary

duty by purchasing petroleum products from third parties and then reselling the

product to the Trading Company at a higher price than Astra had paid for

it. In this regard, Petrobras

asserted that Astra engaged in self-dealing by usurping a corporate opportunity

belonging to the Trading Company to make a profit. Petrobras requested

the Panel to order Astra to produce certain categories of documents, including trade

documents. Petrobras

also moved the Panel to postpone the arbitration hearing.

In its

opening brief on appeal, Petrobras asserts as

follows:

After Petrobras was alerted to

Astra’s withholding of documents, it moved to compel production and requested a

postponement of the hearing. Petrobras submitted proof that Astra withheld specific

documents including trading contracts and “deal sheets” that bore directly on Petrobras’s claims. The

Panel, however, ignored these facts and denied Petrobras’s

requests to compel the production of documents and to postpone the hearing. The panel thereby forced Petrobras

to prosecute its claims without the very documents necessary to fully prove

them, and then ruled that Petrobras failed to carry

its burden of proof.

To

support its assertion that Astra withheld documents relevant to Petrobras’s breach of fiduciary duty claim, Petrobras points to documents produced in a separate suit involving

the parties. These documents include the

email from Astra Oil Trading’s president, Mike Winget ,

stating that the Astra traders seconded to the Trading Company had not been

“stellar performers” and that he would “not say more in print!” [7] Petrobras suggests

that the statement indicates improper conduct by the Astra traders who worked

at the Trading Company. Petrobras also points to documents relating to a specific,

identifiable trade in which Astra sold product to the Trading Company that Astra

had purchased from an undisclosed third party for an unknown price.

Petrobras acknowledges the extensive testimony heard by the

Panel at the arbitration hearing regarding the trades. This testimony included a great deal of information

regarding pricing of the product and whether Astra had profited from these

deals to the detriment of the Trading Company.

Nonetheless, Petrobras avers that it was prejudiced

by the Panel’s denial of its motions to compel and to postpone the hearing. It asserts that it did not have the trade

documents, including the deal sheets, to conduct a meaningful and effective

cross-examination of Astra’s witnesses. In

short, it asserts that it was denied a fundamentally fair hearing on its breach

of fiduciary claims.

The standard,

however, is not whether Petrobras would have

benefitted from the trade documents’ production. “Arbitrators are not bound by formal rules of

procedure and evidence, and the standard for judicial review of arbitration

procedures is . . . whether a party to arbitration has been denied a

fundamentally fair hearing.” Nat’l Post Office v. U.S.

Postal Serv ., 751 F.2d 834 , 841 (6th Cir. 1985). This is in line with the general purpose of

arbitration to promote a speedy and efficient resolution to conflicts without

the formalities of litigation. See, e.g., Admart AG v. Stephen & Mary Birch Found., Inc ., 457

F.3d 302, 311 (3d Cir. 2006); Aerojet –Gen. Corp. v.

Am. Arbitration Ass’n , 478 F.2d 248 , 251 (9th

Cir. 1973). The United States Supreme

Court has explained, “[B]y agreeing to arbitrate, a party ‘trades the

procedures and opportunity for review of the courtroom for the simplicity,

informality, and expedition of arbitration.’” Gilmer v. Interstate/Johnson Lane Corp ., 500 U.S. 20, 31 , 11 S. Ct.

1647 , 1655 (1991). These

principles are reflected, here, in the parties’ arbitration agreement; the

parties agreed to expedited arbitration with an award to be made within 60 business

days of the arbitration demand.

With respect

to discovery in the context of arbitration, one court explained,

[A] rbitrators are not required

to sacrifice speed or informality in order to permit a party to introduce every

piece of relevant evidence. . . . Although arbitrators may not deny discovery

of documents which are central to a dispute, they may conduct only such

discovery as they find necessary and can refuse discovery of evidence of

uncertain relevance or evidence related to non-merits issues.

Roberts

v. A.G. Edwards & Sons, Inc. , No. B–06–17,

2007 WL 597371 , at *7 (S.D. Tex. Feb. 21, 2007) (citations omitted). Nonetheless, courts have recognized that fundamental

fairness requires that each party have an adequate opportunity to present its

evidence and its arguments. Forsythe Int’l, S.A. v. Gibbs Oil Co ,

915 F.2d 1017, 1023 (5th Cir. 1990); Int’l

Bank of Commerce–Brownsville v. Int’l Energy Dev. Corp ., 981 S.W.2d 38 , 42 – 3 (Tex. App.—Corpus

Christi 1998, pet. denied) (citing Bos . Celtics Ltd. P’shp v. Shaw , 908 F.2d 1041 , 1046 – 47 (1st Cir. 1990)). Thus, the inquiry here is whether Petrobras proved that the Panel’s decision not to order

further discovery and postpone the arbitration hearing deprived Petrobras of a fair hearing. If the answer is no, then the trial court

correctly determined that the Panel did not engage in misconduct that would

warrant vacatur under FAA section 10(a )( 3).

During the

eight-day arbitration hearing, counsel for each side elicited direct testimony

and conducted in-depth cross-examination regarding the propriety of the trades

at issue. Fernando Assad testified in

support of Petrobras’s claims that Astra had engaged

in self-dealing. Astra offered the

testimony of its representatives Alberto Felhaber and

Irek Kotula . The witnesses testified regarding the

mechanics of the trades, internal procedures to ensure the integrity of the

transactions, pricing, profits, deal sheets, and a myriad of other related

issues. Significantly, Irek Kotula , an Astra managing

trader who worked at the Trading Company, testified that the deal sheets for

the trades were sent to two members of the Trading Company’s board of

directors, including a representative of Petrobras ,

Sergio Baron, “for oversight and questions.”

In the

portion of Award denying Petrobras’s claims based on

the trades, the Panel wrote as follows:

The evidence indicates . . . that the parties were well

aware that [Astra’s] traders, from time to time, traded directly with the Trading

Company, and that Petrobras ’

Sergio Baron received deal sheets for such trades. In any event, the Panel concludes that [ Petrobras has] not shown that [Astra] breached any

contractual or other duties nor that any damages were caused by these trades.

As indicated

by this provision, the Panel chose to believe Kotula’s

testimony. See Ouzenne , 2011 WL 1938430 , at *2 (stating

that arbitrator judges credibility of witnesses and may choose who to believe

or to disbelieve). Given the extensive testimony regarding

the trades offered by each side, including Kotula’s

testimony that Petrobras had received the deal sheets

through Baron, the record does not demonstrate that Petrobras

lacked sufficient information to cross-examine Astra’s witnesses or to

prosecute its breach of fiduciary claims against Astra.

The record

shows that, after the Panel had heard the evidence in this case, Petrobras was afforded another opportunity to demonstrate

why it was entitled to additional discovery.

The Panel’s Award indicates that it considered Petrobras’s

arguments regarding the need for additional discovery before issuing the Award. The Panel made this evaluation after hearing

the evidence in the case.

As set forth

more fully infra , the Panel provided

a lengthy and thoughtful explanation regarding why no further discovery was

needed. In pertinent part, the Panel

explained that “the discovery authorized here was fully consistent with the

scope of discovery authorized by the [Arbitration] Rules . . . and afforded all

parties a reasonable opportunity to prepare their cases for hearing.” The Panel continued that it found that Astra

had “complied with [its] discovery obligations and that no further discovery

should be ordered.” The Panel concluded

that “the additional discovery sought by [ Petrobras ],

if permitted, would unreasonably delay the parties’ ability to obtain a Final

Award in this arbitration for no persuasive or necessary reason.”

We conclude that

Petrobras has failed to show that it did not receive

a full and fair hearing on its breach of fiduciary duty claims as a result of

the Panel’s denial of its request for additional discovery and its

concomitant request to postpone arbitration . We further conclude that Petrobras

has not shown that the Panel engaged in misconduct entitling Petrobras to partial vacatur of

the Award. See 9 U.S.C. § 10 (a )( 3). We hold that the trial court properly denied Petrobras’s motion for partial vacatur

of the portions of the Award denying Petrobras’s

claims and its request for further discovery.

As an

alternative to partial vacatur , Petrobras

requested the trial court to allow it to conduct additional discovery. The trial court denied the relief. Petrobras requests

this Court to remand the case to the trial court for additional discovery regarding

the documents allegedly withheld by Astra.

Petrobras asserts in its brief that “discovery

is available in a post-arbitration proceeding when relevant and necessary to

the determination of an issue raised by a party’s vacatur

motion.” It cites Karlseng v. Cooke for support. 286 S.W.3d 51, 58 (Tex. App. — Dallas

2009, no pet.).

In Karlseng , the

court reversed the trial court’s confirmation of the arbitration award after

concluding that the trial court abused its discretion by denying appellants’

motion for continuance to investigate the evident partiality of the arbitrator. Id . The court held that the trial court abused

its discretion by failing to grant the requested continuance after being

presented uncontradicted evidence that the arbitrator

failed to disclose a prior relationship with appellee’s lead counsel. Id .

In contrast, Petrobras’s sole argument on appeal is that “new evidence

that came to light after the arbitration provides clear proof that discovery

abuse did occur, and warrants discovery into this issue.” Petrobras offers no

further argument to show how the trial court abused its discretion in denying

its discovery request. As discussed

above, the Arbitration Panel concluded that it had sufficient evidence to

determine Petrobras’s claims. It was well aware that Petrobras

wanted to obtain copies of the Astra’s trade files for certain

transactions.

None of the

“newly discovered evidence,” referenced by Petrobras

in other portions of its brief, shows that Astra engaged in self-dealing. In fact, at the hearing on its vacatur motion, Petrobras’s

counsel acknowledged that Petrobras did not know

whether the trade files would show any wrongdoing by Astra.

In short, Petrobras does not explain how any of the “newly discovered

evidence” will advance its request for vacatur beyond

its general allegation that Astra engaged in a pattern of discovery abuse. Petrobras has not

shown that the trial court abused its discretion in denying the request for

additional discovery.

We overrule Petrobras’s second issue.

Exceeding Authority

In its third

issue, Petrobras contends that the Award should be

vacated because the Panel exceeded its authority by “rewriting” the parties’

agreements to require Petrobras to close the put

rights for PRSI and the Trading Company without, in turn, requiring Astra to

deliver its books and records, which Petrobras had requested.

This argument falls within Section 10(a )( 4) of the FAA which provides that an arbitration award may

be vacated “where the arbitrators exceeded their powers.” 9 U.S.C. § 10 (a )( 4).

Article 5.3

of the Shareholder Agreement and Article 9.4 of the Partnership Agreement

provide that if the Astra entities validly exercise their put rights, the

parties are required to proceed to closing. Those provisions required the Petrobras entities to pay the put prices for the companies. The Agreements required Astra to transfer

ownership in the companies to Petrobras and to deliver

“documents and assignments as [ Petrobras ] may

reasonably request.”

Petrobras complains that the second paragraph of following

provision in the Award impermissibly “rewrites” the agreement by forcing it to

pay the put prices for the companies, even if Astra fails to deliver documents Petrobras had reasonably requested:

We find that the provisions of Article 5.3 of the

Shareholders’ Agreement and the corresponding provision in Article 9.4 of the

Partnership Agreement, evidence the intent of the parties that the completion

of the Minority Put transaction was intended to finalize simultaneously all

matters referenced therein related to transfer of the interests being sold to

claimants as a result of the exercise of the Minority Puts.

Accordingly,

no later than April 27, 2009, the parties shall comply with all additional

requirements of Article 5.3 of the Shareholders’ Agreement and Article 9.4 of

the Partnership Agreement in addition to the matters discussed above in [the]

sub-paragraphs [pertaining to payment and transfer of ownership interests],

except to the extent inconsistent with the express provisions of this

Award. Any disputes related to

performance of any of the additional matters referenced in this subparagraph

[], including any of the issues raised at [pages 47 to 49 of Petrobras’s post-hearing brief], shall not be grounds to

delay performance of any of the obligations specified above in sub-paragraphs

[regarding payment and transfer of ownership interests], but rather, if any

such dispute cannot be resolved by agreement of the parties, shall be resolved

in accordance with the dispute resolution provisions of the Shareholders’

Agreement and Partnership Agreement.

“Arbitration

is a matter of contract: The powers of an arbitrator are dependent on the

provisions under which the arbitrators were appointed.” Apache Bohai Corp. LDC v. Texaco China BV , 480 F.3d 397, 401

(5th Cir. 2007) (internal quotation marks omitted) (quoting Brook v. Peak Int’l , Ltd. , 294 F.3d 668 , 672 (5th Cir. 2002)). “Where arbitrators act ‘contrary to express

contractual provisions,’ they have exceeded their powers.” Id .

(quoting Delta Queen Steamboat Co. v.

AFL–CIO , 889 F.2d 599, 604 (5th Cir. 1989)).

When

an arbitration agreement gives an arbitrator authority to interpret and apply a

contract, the arbitrator’s construction of that contract must be enforced so

long as it is “rationally inferable from the letter or purpose of the

underlying agreement.” Glover v. IBP, Inc. , 334 F.3d 471, 474

(5th Cir. 2003) (quoting Executone Info.

Sys., Inc. v. Davis , 26 F.3d 1314, 1320 (5th Cir. 1994); see also Halliburton Energy Servs ., Inc. v. NL Indus. ,

553 F. Supp. 2d 733, 754 (S.D. Tex. 2008). In deciding what is rationally inferable from

the underlying contract, a court is guided by the usual state-law rules of

contract interpretation. Glover , 334 F.3d at

474 . “[I]f an arbitrator is even

arguably construing or applying the contract and acting within the scope of his

authority, the fact that a court is convinced he committed serious error does

not suffice to overturn his decision.” Major League Baseball Players

Ass’n v. Garvey , 532 U.S. 504, 509 , 121 S. Ct.

1724, 1728 (2001) (internal citations omitted).

Here,

the Agreements authorized the Panel to resolve “any dispute arising out of or

relating to [these Agreements].” Thus,

the Panel had authority pursuant to the Agreements to interpret the contractual

provisions. Petrobras

does not argue that the Panel did not have authority to interpret the

Agreements. Instead, Petrobras

intimates that the Panel did not merely interpret the Agreements but rewrote

them by omitting the document production requirement. Petrobras

contends that the Panel acted contrary to the express contractual provisions of

the Agreements because it did not require Astra to deliver at closing documents

reasonably requested by Petrobras .

Contrary

to Petrobras’s reading, the Award requires Astra to

comply with all closing provisions. This

necessarily includes requirement that Astra deliver the reasonably requested

documents at closing. The Panel did not omit

or exclude these provisions or otherwise absolve Astra from performance. Thus, the Award requires Astra to deliver reasonably

requested documents at the closing on April 27, 2009, when Petrobras

“simultaneously” fulfilled its payment obligations under the Agreements.

The

Panel’s Award makes clear, however, that regardless of whether Astra delivers

the requested documents at closing, Petrobras must

still fulfill its payment obligation, and Astra must still fulfill its

obligation to deliver its ownership interests in the companies. Pursuant to the Panel’s interpretation of the

closing provisions, nonperformance of the document delivery requirement does

not authorize delayed performance by Petrobras

regarding payment or by Astra regarding transfer of its ownership rights. In

other words, the Panel interpreted the provision regarding the delivery of the

documents not to be a condition precedent that must be performed to trigger Petrobras’s payment obligation under the Agreements. Rather, the Panel interpreted the document

delivery provisions to be covenants that, if not performed, could be resolved

by additional arbitration. See Solar Applications Eng’g ,

Inc. v. T.A. Operating Corp. , 327 S.W.3d 104, 108 (Tex. 2010) (discussing

distinction between a condition precedent and a covenant).

In

sum, the Panel had the authority to interpret the Agreements. When it determined that Petrobras’s

performance was not conditioned on Astra’s delivery of the documents, the Panel

was applying the law and interpreting the Agreements; it was not rewriting them.

In actuality, what Petrobras

is asking this Court to do is exactly what we cannot: second-guess the Panel’s

decision on the merits of contract interpretation. See Kergosien v. Ocean Energy, Inc ., 390 F.3d 346, 353 (5th

Cir. 2004) (“[S]o far as the arbitrator’s decision concerns construction of the

contract, the courts have no business overruling him because their

interpretation of the contract is different than his.”).

We

conclude that Petrobras has not shown that the Panel

exceeded its authority. We hold that the

trial court properly denied Petrobras’s motion for

partial vacatur with respect to this ground.

We

overrule Petrobras’s third issue.

Procuring Award through

Fraud

In

its fourth issue, Petrobras asserts that the portion

of the Award ordering Petrobras to pay Astra $156

million for indemnity should be vacated because that portion of the Award was

procured through fraud. Section

10(a )( 1) of the FAA provides that an arbitration award

may be vacated “where the award was procured by corruption, fraud, or undue

means.” 9 U.S.C. § 10 (a )( 1).

A

party alleging that an arbitration award was procured through corruption,

fraud, or undue means must demonstrate that the improper behavior was (1) not

discoverable by due diligence before or during the arbitration hearing, (2)

materially related to an issue in the arbitration, and (3) established by clear

and convincing evidence. See Roehrs , 246 S.W.3d at 810–11; In re

Arbitration Between Trans Chem. Ltd. & China Nat’l Mach. Imp. & Exp. Corp. , 978 F. Supp. 266, 304 (S.D. Tex. 1997).

Fraud requires a showing of bad faith

during the arbitration proceedings, such as bribery, undisclosed bias of an

arbitrator, or willfully destroying or withholding evidence. Roehrs , 246 S.W.3d at 812 ; In re Arbitration Between Trans Chem. Ltd.

& China Nat’l Mach. Imp. & Exp. Corp. , 978 F. sSupp .

at 304. Section

10(a )( 1) also requires a nexus between the alleged

fraud and the basis for the arbitrator’s decision. In re

Arbitration Between Trans Chem. Ltd. & China Nat’l Mach. Imp. & Exp. Corp. , 978 F. Supp. at

304 ; Forsythe Int’l S.A. v. Gibbs Oil Co. ,

915 F.2d 1017, 1022 (5th Cir. 1990).

In

its opening brief, Petrobras asserts as follows with

regard to its fraud claim:

In support of this indemnification claim, [Astra Oil

Trading] submitted sworn testimony from Kari Burke, an accountant employed by

one of [Astra Oil Trading’s] affiliates.

Burke specifically asserted that [Astra Oil] had made the $156 million

payment, stating that “[Astra Oil] paid to [BNP] Paribas on November 3, 2008,

by wire transfer, the total demanded of [Astra Oil] by [BNP] Paribas, an amount

of . . . $156,442,878.93.” [Astra Oil]

also represented in its pleadings that it had made the $156 million

payment. The Panel accepted these

representations and Burke’s testimony about [Astra Oil] making the payment as

true, and awarded [Astra Oil Trading] the indemnity.

However,

it was later shown in [Astra Oil’s] lawsuit with PRSI and PRSI Trading [in

another court] that [Astra Oil] did not in fact make the $156 million payment

that allegedly gave rise to its claim for indemnification. Rolf Mueller, [Astra Oil Trading’s] Chief

Financial Officer, admitted that the $156 million payment originated from a UBS

bank account jointly owned by two separate entities, AOT Trading AG and AOT Holding

Ltd., and not [Astra Oil Trading]. . . .

[Astra Oil’s]

misrepresentations about the source of the $156 million payment require vacatur of the portion of the award granting it an

indemnity for this amount. [Astra Oil]

knew before making its indemnification claim in the arbitration that the $156

million payment had actually been made by AOT Holding, but it failed to

disclose that critical fact to the Panel, and instead misrepresented that [Astra

Oil] had made the payment.

Regardless of

the propriety of these allegations, Petrobras made no

showing that the fraud was not discoverable on the exercise of due diligence

before or during arbitration. To the

contrary, documents submitted by Astra in response to the vacatur

motion show that, before the arbitration, Petrobras

was aware that the funds had been wire transferred from AOT Trading AG’s bank

account.

We conclude

that Petrobras failed to show that the $156 million

indemnity award was procured by fraud.

We hold that the trial court properly denied the motion for partial vacatur with respect to this ground.

We overrule Petrobras’s fourth issue. [8]

Conclusion

We

affirm the judgment of the trial court.

Laura

Carter Higley

Justice

Panel consists of Chief

Justice Radack and Justices Higley and Brown.

[1] See Astra Oil Trading N.V. v. Petrobras Am. Inc ., 718 F.Supp .

2d 805 (S.D. Tex. 2010), vacated

on reh’g , Astra Oil Trading N.V. v. Petrobras Am. Inc ., No. H–09–1274, 2010 WL

3069793 (S.D. Tex. Aug. 4, 2010).

[2] Id. at 718 F. Supp.2d at 812.

[3] Id. at 718 F. Supp.2d at 813.

[4] Id. at 816.

[5] See

9 U.S.C. § 10 (a).

[6] Petrobras also

moved for joinder of a third-party affiliate of Astra, appellee, Pasadena

Refinery Holding Partnership because it had claimed an interest in the subject

of the award. The trial court granted

the motion to join Pasadena Refinery.

[7] Nothing in the record indicates that the

traders’ performance referenced by Winget related to

the allegations of self-dealing made by Petrobras . However, Petrobras

asserts that it was entitled to information regarding the traders’ performance

and suggests that the email may have led to additional relevant

information.

Petrobras also discusses additional documents discovered in

separate state court litigation. These

documents do not relate directly to the breach of fiduciary duty claim or to

the trading activities; instead, they relate to other issues determined in the

arbitration, such as the value of the put option exercised by Astra. Petrobras also

points to correspondence indicating that documents claimed by Astra in the

arbitration to be privileged were not privileged. Petrobras appears

to cite these documents to show that Astra had engaged in a pattern of

discovery abuse and to show that it was prejudiced by Astra’s conduct. Petrobras also

points out that the federal district court, which initially confirmed the

Award, remarked in a footnote to its opinion vacating its earlier opinion and

dismissing the action, that email chains had been

discovered in a state court proceeding between the parties that appear to have

been relevant to the arbitration but were not produced. See Astra

Oil Trading NV v. Petrobras Am., Inc. , No . H – 09 – 1274,

2010 WL 3069793 , at *5 n.17 (S.D. Tex. Aug. 4, 2010). The federal court did not state that it

believed its earlier confirmation of the Arbitration Award had been in error;

nor did it otherwise explain the significance of the newly discovered documents

it found to be relevant to the arbitration.

The footnote has no bearing on our review here.

[8] Having overruled Petrobras’s

second, third, and fourth issues identifying specific grounds to reverse the

trial court’s judgment, we also overrule Petrobras’s

first issue which raised a global challenge to the judgment.