Opposition Brief — Smith Cogeneration International, Inc. v. Smith/Enron Cogeneration Ltd. Partnership

Supreme Court, U.S.

eat FILED

“ad FJUL 1.8 9nMn

No. 99-1857

IN THE eee pnennnenienmasennne =n ea

Supreme Court of the United States

SMITH COGENERATION INTERNATIONAL, INC.,

Petitioner,

v.

SMITH/ENRON COGENERATION LIMITED PARTNERSHIP,

INC., ENRON INTERNATIONAL C.V., ENRON

DEVELOPMENT CORP., ENRON RESERVE I B.V.,

ATLANTIC COMMERCIAL FINANCIAL B.V.

and TRAVAMARK TWO B.V.,

Respondents.

On PETITION FOR A WRIT OF CERTIORARI TO THE

Unrrep States Court OF APPEALS FOR THE SECOND CIRCUIT

BRIEF IN OPPOSITION

GREGORY MARKEL

Counsel of Record

Ronit SETTON

BROBECK, PHLEGER & HARRISON LLP

Attorneys for Respondents

1633 Broadway, 47th Floor

New York, New York 10019

(212) 581-1600

7" Oe"

160955 @ Counsel Press LLC

(800) 274-3321 + (800) 359-6859

i

STATEMENT PURSUANT TO RULE 29.6

Pursuant to Rule 29.6, Respondents Smith/Enron

Cogeneration Limited Partnership, Inc., Enron International

C.V., Enron Development Corp., Enron Reserve I B.V.,

Travamark Two B.V. and Atlantic Commercial Financial

B.V. make the following disclosures:

There are no publicly held companies that own 10% or

more of the stock of any Respondents. The parent companies

or owners of Respondents are as follows:

SMITH/ENRON COGENERATION LIMITED

PARTNERSHIP, INC.

General Partners:

Smith Cogeneration Dominicana, Inc.

Enron Dominican Republic Operations Ltd.

Limited Partners:

Smith Cogeneration International, Inc.

Enron Dominican Republic Ltd.

Enron Dominicana Limited Partnership

ENRON INTERNATIONAL C.V.

General Partner:

Enron International B.V.

Limited Partner:

India Electric Maintenance Ltd.

il

ENRON DEVELOPMENT CORP.

Owner(s):

Enron Power Corp.

ENRON RESERVE I B.V.

Owner(s):

Atlantic Commercial Finance, Inc.

TRAVAMARK TWO B.V.

Owner(s):

Atlantic Commercial Finance, Inc.

ATLANTIC COMMERCIAL FINANCIAL B.V.

(The correct name of this party is Atlantic Commercial

Finance B.V. I.i.)

Owner(s):

Atlantic Commercial Finance, Inc.

ili

TABLE OF CONTENTS

Statement Pursuant to Rule 29.6 ...............

ES SOG NESE coe Pe TR ea Ie

Reasons for Denying the Writ .................

ESR aS Aig Pap i ar tag pea tecia Ee raat

I. Federal Law Governs The Enforcement Of

Arbitration Between The Parties .........

A.

Federal Law Dictates That Agreements

to Arbitrate be Enforced According to

ME I ho bale ee vis we

Federal Law Applies Because this

Dispute Implicates the Convention ...

There is no Basis for Applying New

York Law in this Case ...............

The Second Circuit’s Ruling Does Not

Conflict with Supreme Court Precedent

- or Decisions in Other Circuits .......

II. The Arbitration Agreements Are Enforceable

SR NS BH Sa i Sk es

Conclusion

o. 2,2 #-4 32.6.9 2.8 O08 2 8.4 8 O's: @ A He A eS: OC RSS. Ee Oe

10

11

13

20

iv

TABLE OF CITED AUTHORITIES

Page

Cases:

Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank

National Ass'n, 731 F.2d 112 (2d Cir. 1984) ...10, 12

Acquaire v. Canada Dry Bottling, 906 F. Supp. 819

Cae 8 SOE dace dacuagvenenuesneverus 18

American Diagnostica of Connecticut, Inc..v.

Centerchem, Inc., No. 94 Civ. 7047 (DC), 1996

WL 71494 (S.D.N.Y. Feb. 20, 1996) .......... 18

Atherton v. FDIC, 519 U.S. 213 (1997) ......... 12

AT&T Techs., Inc. v. Communications Workers of

America, 475 U.S. 643 (1986) ............... 19

Butchers, Food Handlers & Allied Workers Union

v. Hebrew Nat'l Kosher Foods, Inc., 818 F.2d 283

gt ABS yg een One, Wome. Urey 19

Coenen v. R.W. Pressprich & Co., 453 F.2d 1209

(2d Cir. 1972), cert. denied, 406 U.S. 949

CRO SEE Ss icc RbbR es 6 ceeds ae be vee ea os 8, 19

David L. Threlkeld & Co. v. Metallgesellschaft Ltd.,

923 F.26 245 (a8 Cop. VIG) id 2 5k RES. 8

Deloitte Noraudit A/S v. Deloitte Haskins & Sells,

U.S., 9 F.3d 1060 (24 Cir. 1993) 2.0.5... 5 cee 14

Cited Authorities

Dobson v. Counsellors Secs., Inc., No. 94-CV-

73942-DT, 1995 WL 871004 (E.D. Mich. Sept.

O3; ROMY 5 27 Gan foe eee

Doctor’s Assocs. Inc. v. Casarotto, 517 U.S. 681

CRN NOG iG cde newkc ook xebaeuiennes

E.G.L. Gem Lab Ltd. v. Gem Quality Inst. Inc., No.

97 Civ. 7102 (LAK), 1998 WL 314767 (S.D.N.Y.

FORD AGF NGM? Fieks + KKK epee ees WERE e ,

EZ Pawn Corp. v. Mancias, 934 S.W.2d 87 (Tex.

OG iA HOR EKER

Filanto, S.p.A v. Chilewich Int'l Corp., 789 F. Supp.

E29 CGB, Vs SOIR) sas in es eS

First Options of Chicago, Inc. v. Kaplan, 514 U.S.

O50 CITE sana Pe eer oe Te eee

Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d

DOD CAE Ge SIR 6 os nas Ve ka wea

Gibson v. Neighborhood Health Clinics, Inc., 121

Fie SSO Pe COED Sd cask awaakecauness

Harvey v. Joyce, 199 F.3d 790 (Sth Cir. 2000) ....

Insta-Bulk, Inc. v. Powertex Inc., 764 F. Supp. 52

CR TDG, ROP Sas AOS ies itd aes

Page

12

15

12

12

18

vi

Cited Authorities

Page

Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266

EK Ae i. ) Pr ee er ee 7

J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A.,

863 F.26 31S (0G Coe; TGR os ei 5 14, 15

Lachmar v. Trunkline LNG Co., 753 F.2d 8 (2d Cir.

19GS) wc ccvcrs babs wrbeedanns eres eee 17

Letizia v. Prudential Bache Secs., Inc., 802 F.2d

1385S Ge Ce, TD cis. cack ka ac cene 8

Litton Fin. Printing Div. v. NLRB, 501 U.S. 190

CIDE 6 iccnnshotandse eee 18

Mastrobuono v. Shearson Lehman Hutton, Inc., 514

WSs DS CIGOOD vb okccewaendecses eee 6

McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d

SIS GAGE. SFG 6k bbe vibeise sane 14

McBro Planning & Dev. Co. v. Triangle Elec.

Constr. Co., 741 F.2d 342 (11th Cir. 1984) :

ot Ube 6 Kees be URW eS > ab bewe eT eet e ea 14

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc. 473 U.S. 614 (1985) .......... 8

Monroe Sander Corp. v. Livingston, 377 F.2d 6

(2d Cir.), cert. denied, 389 U.S. 831 (1967) .... 18

vil

Cited Authorities

Page

Moses H. Cone Mem’! Hosp. v. Mercury Constr.

Core, See Wie. 2 Chee oo sd hea ey 7

Nolde Bros., Inc. v. Local No. 358, Bakery &

Confectionery Workers Union, AFL-CIO, 430

Seas MO ITED 8k eo kh ee ee eka ee 19

Oldroyd v. Elmira Savs. Bank, FSB, 134 F.3d 72

CO TE Soa ok ce kk eae os Kom ceeeersS 7

Perry v. Thomas, 482 U.S. 483 (1987) .......... 12

Riley Mfg. Co., Inc. v. Anchor Glass Container

Corp., 157 F.3d 775 (10th Cir. 1998) ......... 12

Sharon Steel Corp. v. Jewell Coal and Coke Co.,

pir ep gs be ae || Peer een, yr aree 8

Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc.,

10 F.3d 753 (11th Cir. 1993), cert. denied, 513

RSG Pee GR ike 8 WEA ARE LOASS 14,15

Tenneco Resins, Inc. v. Davy Int’l, A.G., 770 F.2d

RE PD a elle oko ke shee ceennses 17

Thomson-CSF, S.A. v. American Arbitration Ass’n.,

ee Cie Ge ls RUUD hack tcc ceeccsaaes 14

United States v. Panhandle Eastern Corp., 693

se, CEs BOE SD Svc tcc kcesrsceess 17

Vili

Cited Authorities

Page

United Steelworkers of America v. Warrior & Gulf

Navigation Co., 363 U.S. 574 (1960) ......... 19, 20

Vainqueur Corp. v. Lamborn & Co., 305 F. Supp.

1007 DONS TORR kn As 16

Volt Information Sciences, Inc. v. Board of Trustees

of Leland Stanford Junior Univ., 489 U.S. 468

| Peeper gy rerr rr ren ete, Seton Fae 6

Statutes:

DURA OG BOO ois ET a 1

gis i ote Sere “p' ShaboWer kee uekg Rana oka 9

Other Authority:

Joseph T. McLaughlin, Alternative Dispute

Resolution in the Corporate Sector, SDO6 ALI-

PRA, NESE CRED vc hee dew ne coke ia eee 6

l

REASONS FOR DENYING THE WRIT

The sole issue presented by the Petition is whether the

Second Circuit properly held that federal law, rather than

New York law, governs the enforceability of agreements to

arbitrate between Petitioner Smith Cogeneration

International, Inc. (“SCI”) and Respondents Enron

International C.V. and a number of its affiliates (collectively,

“Enron” or the “Enron Entities”). Applying federal law, the

Second Circuit affirmed the district court’s order compelling

arbitration and enjoining SCI from pursuing its lawsuit in

the Dominican Republic against Enron in contravention of

SCI’s agreements to arbitrate disputes with Enron.

Under the facts of this case, there can be no question

that federal law applies: (i) the arbitration agreements

between the parties expressly provide that the Federal

Arbitration Act (“FAA”) applies to the enforcement of

arbitration; (ii) this is a federal question case arising under

Chapter Two of the FAA, 9 U.S.C. §§ 201-208 (implementing

the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (the “Convention”)); (iii) there are

compelling reasons to apply federal law, which is already

well-developed, to the question of whether an agreement to

arbitrate is enforceable; (iv) there exists a strong federal

policy in favor of arbitration, particularly in the international

context; and (v) the parties did not intend that New York

law would govern any disputes.

In an attempt to avoid arbitration despite having entered

into several broad agreements to arbitrate disputes with

Enron, SCI makes the convoluted assertion that New York’s

choice of law rules apply and in turn point to the law of

Turks and Caicos (and thereby some dicta from a British

case and an ordinance that does not even address the relevant

issue). There is simply no basis, however, for the first step

ee

2

in SCI’s analysis — that New York law applies. None of the

agreements at issue contains any reference to New York law,

much less a New York choice of law provision, none of the

parties is a New York resident, none of the underlying events

occurred in New York, and the parties do not assert diversity

jurisdiction. Contrary to SCI’s assertion that the Second

Circuit’s ruling (the “Opinion”) conflicts with Supreme Court

and Circuit Court decisions, none of the cases cited in the

Petition arose under the Convention or involved an

arbitration agreement specifying the applicability of the 4

FAA.!

1. SCI also claims in passing that the Second Circuit “misus[ed]

veil piercing and estoppel theories” in holding that Enron is entitled

to invoke the arbitration clause despite the assignments made by

the parties. SCI briefly explains its objection to the Court’s use of

the veil-piercing theory in a footnote, but never explains why the

Second Circuit allegedly “misus[ed]” an estoppel theory to prevent

SCI from avoiding its obligation to arbitrate disputes with Enron.

See Pet. at 5 & n.4. Enron believes that SCI’s cursory reference to

the Second Circuit’s determination on these issues, which is not

mentioned in any other section of the Petition, is insufficient for

purposes of seeking and obtaining a writ of certiorari. In the event

that this Honorable Court determines that these issues are properly

raised by the Petition, however, we respectfully refer the Court to

Part II of this Opposition and to Enron’s Answer to SCI’s Petition

for Rehearing before the Second Circuit, in which Enron

demonstrates that these aspects of the Second Circuit’s ruling are

also correct. We also note that the Second Circuit held that SCI is

required to arbitrate under either an estoppel ox veil piercing theory.

Therefore, if this Honorable Court finds that the Second Circuit’s

determination on the estoppel issue is not properly raised by the

Petition or does not warrant review, SCI’s objection to the

application of veil piercing is irrelevant because it was not essential

to the Second Circuit’s holding.

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—

3

STATEMENT OF FACTS

In July 1993, SCI signed a power purchase agreement

(“PPA”) with the state-owned utility in the Dominican

Republic to construct, finance, and manage an electrical

power plant in Puerto Plata. (Joint Appendix (“JA”) A157).

On November 12, 1993, SCI and Enron International C.V.

agreed to create a joint venture to construct, manage, and

operate the plant, as reflected in a Project Agreement.

(JA Al4-A40). On November 24, 1993, Smith Cogeneration

Dominicana, Inc. (“Smith Dominicana”), an SCI affiliate,

and Travamark Two B.V. (“Travamark”), an Enron affiliate,

formed the Smith/Enron Cogeneration Limited Partnership

(“SECLP”) pursuant to an agreement (the “1993 Agreement”

(JA A41-A91)). The 1993 Agreement stated that the purpose

of the SECLP was to construct, own, manage, and operate

the power plant to be located in Puerta Plata. (JA AS53,

Art. II 4 2.5). The 1993 Agreement also required Smith

Dominicana to cause SCI to contribute and assign all of its

interest in the PPA with the state-owned utility in the

Dominican Republic to SECLP. (JA A57-A58, Art. IV § 4.2).

On May 1, 1994, Smith Dominicana assigned part of its

partnership interest in SECLP to SCI, thereby making SCI a

party to the 1993 Agreement. (JA A203-A217). Similarly,

on December 1, 1993, Travamark assigned its limited

partner’s interest in SECLP to another Enron affiliate,

Atlantic Commercial Finance B.V. (JA A193-A197). On

April 15, 1994, Travamark assigned its general partner’s

interest to Enron Reserve I B.V. (JA A198-A202). Upon

assignment, each of the assignees agreed to be bound by the

terms and provisions of the 1993 Agreement.

4

The 1993 Agreement was amended on December 15,

1994 (the “1994 Agreement”) (JA A92-A129). The 1994

Agreement reflects the addition of the new partners whose

interests had been assigned to them by the original partners

to SECLP as reflected above. The partners at this time were

Smith Dominicana, SCI, Enron Reserve I B.V., and Atlantic

Commercial Finance B.V. Jd. The 1994 Agreement contains

a broad arbitration clause and also provides that “[a}ny

arbitration under this Section 11.14 shall for all purposes be

governed by, and construed and enforced in accordance

with, the Federal Arbitration Act (‘FAA’) and matters of

interpretation of the provisions of this agreement shall be

governed by Texas law in any such arbitration.” (JA A126,

§ 11.14(h)) (emphasis added).’

The 1994 Agreement was amended on April 30, 1996

(the “1996 Agreement”). (JA A130-A141). The arbitration

provisions remained unchanged. (/d. § 11.14). At this time,

Smith Dominicana Ltd. and an Enron affiliate entered into a

Holding Partnership Agreement, which contains arbitration

clauses virtually identical to those contained in the SECLP

agreements. (JA A188-A190, § 11.20). In June 1998, Smith

Dominicana Ltd. and the Enron affiliate submitted to the

2. The Project Agreement and 1993 Agreement contain a

similar provision:

{aJny arbitration under this Article [X(4) [Section 11.14]

Shall for all purposes be governed by, and construed

and enforced in accordance with, the Federal

Arbitration Act (‘FAA’) and applicable Texas law

(except to the extent Texas law conflicts or is

inconsistent with the FAA), without giving effect to

Texas principles of choice of law.

(JA A37, Art. [IX(4)(h); JA A77, § 11.14(h)) (emphasis added).

5

arbitration of a dispute arising under the Holding Partnership

Agreement. At the outset of the arbitration hearing, Smith

Dominicana, Ltd. conceded the sole issue in the arbitration.

The arbitrator awarded the Enron affiliate $300,000 in

attorney's fees on July 8, 1998. This amount has not been

paid. (JA Al44-A145, 4 3).

Obviously disappointed with the result in the arbitration

and ignoring the several agreements to arbitrate outlined

above, SCI, on July 31, 1998, filed suit in the Dominican

Republic against SECLP, Enron Reserve I B.V., Travamark

Two B.V., Atlantic Commercial Finance, B.V., and Enron

Development (the “Dominican Lawsuit”). In its complaint

in that action, SCI alleges that in 1993 it was defrauded and

coerced by these companies into becoming a partner in

SECLP and assigning its interest in the PPA to SECLP. (JA

A145-A146, q 4). In the complaint SCI asks that each of the

agreements between it and any of the Respondents be

annulled and terminated. The complaint also requests, inter

alia, $159 million in damages. (Jd. f¥ 4, 5). The filing of the

Dominican Lawsuit constituted a failure and refusal by SCI

to arbitrate. As a result, the Enron Entities had no choice but

to commence this proceeding by filing a petition to compel

arbitration and enjoin SCI from further prosecuting the action

in the Dominican Republic.

Judge Richard C. Casey of the United States District

Court for the Southern District of New York granted Enron’s

petition in a decision read from the bench on November 6,

1998, and judgment was entered on December 22, 1998. The

Second Circuit affirmed Judge Casey’s ruling on December

8, 1999, and denied SCI’s petition for rehearing with a

suggestion for rehearing en banc on February 23, 2000.

6

FEDERAL LAW GOVERNS THE ENFORCEMENT

OF ARBITRATION BETWEEN THE PARTIES

A. Federal Law Dictates That Agreements to Arbitrate

be Enforced According to Their Terms

The Second Circuit properly enforced the parties’

agreement that federal law applies to the enforcement of

arbitration. This Honorable Court has consistently held that

- privately negotiated agreements to arbitrate are to be enforced

according to their terms.’ The central issue raised in this case

is the enforceability of the arbitration clauses in the

agreements between the parties. Since SCI agreed that the

FAA would apply to the enforcement of arbitration under

the relevant agreements, New York choice of law rules and

Turks and Caicos law do not even arguably apply. As noted

above, the 1994 Agreement contains the following choice

of law provision: “[a]ny arbitration under this Section 11.14

Shall for all purposes be governed by, and construed and

3. See Volt Information Sciences, Inc. v. Board of Trustees

Leland Stanford Junior Univ., 489 U.S. 468, 478 (1989);

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 5

(1995); see also Joseph T. McLaughlin, Alternative Dispute

Resolution in the Corporate Sector, SDO6 ALI-ABA 1231, 1241-

42 (1998) (“[t]he ruling in Volt had an immediate impact on every

existing and future arbitration agreement .... From that point

forward, if a party to a contract containing an arbitration agreement

or contractual choice of law provision wanted to avoid possible

delays in the courts, the contract had to state explicitly that the parties

intended to be bound by federal law applicable to arbitration”).

7

enforced in accordance with, the Federal Arbitration Act,

and matters of interpretation of the provisions of this

agreement shall be governed by Texas law [only] im any such

arbitration.” (See JA A126, § 11.14(h); emphasis added).‘

The other agreements between the parties similarly provide

that the FAA applies to the enforcement of arbitration.

Federal law determines whether an agreement to arbitrate

is enforceable where the parties have agreed to the

applicability of the FAA. The FAA “create[s] a body of

federal substantive law of arbitrability, applicable to any

arbitration agreement within the coverage of the Act.” Moses

H. Cone Mem 'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,

24 (1983); see Oldroyd v. Elmira Savs. Bank, FSB, 134 F.3d

72, 76 (2d Cir. 1998) (same). This federal substantive law

4. Texas law does not apply to the dispute between the parties.

The 1994 and 1996 Agreements provide that Texas law applies only

in arbitration, and the FAA applies to the enforcement of arbitration.

Although the arbitration clauses in the Project Agreement and 1993

Agreement refer to both the FAA and Texas law, they expressly

exclude Texas principles of choice of law, and the Supreme Court

of Texas repeatedly has held that where an agreement provides for

the application of both Texas law and the FAA, the FAA prevails.

EZ Pawn Corp. v. Mancias, 934 S.W.2d 87, 91 (Tex. 1996); see

Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 271 (Tex. 1992)

(the FAA preempts all otherwise applicable state laws under the

supremacy clause of tie United States Constitution, is substantive

and is the law of Texas). In any event, as the Second Circuit noted

in its Opinion, neither party argued that Texas law applied. Pet.

App. 16a. To the extent SCI is now arguing that Texas law applies,

see Pet. at 12-13, it has waived any such argument. SCI has also

waived any argument based on the Rules of Decision Act, which

was not mentioned in any prior brief. In any event, there is no support

for SCI’s assertion that the Rules of Decision Act requires

application of the law of the forum in this case.

“comprises generally accepted principles of contract law.”

Genesco, Inc. v. T. Kakiuchi & Co., Ltd., 815 F.2d 840, 845

(2d Cir. 1987). As stated by the Second Circuit, “[o]nce a

dispute is covered by the [FAA], federal law applies to all

questions of [the arbitration agreement’s] interpretation,

construction, validity, revocability, and enforceability.”

Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, 1211

(2d Cir. 1972), cert. denied, 406 U.S. 949 (1972) (emphasis

added).°

B. Federal Law Applies Because this

Dispute Implicates the Convention

Federal law applies for the additional reason that the

dispute between the parties falls under the Convention. The

strong federal policy in favor of arbitration, particularly in

the context of international business transactions, compels

the application of federal law. See Mitsubishi Motors Corp.

v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 629-31 (1985)

(the Convention makes it clear that “the federal arbitration

policy applies with special force in the field of international

commerce”); see David L. Threlkeld & Co. v. Metallgesellschaft

Lid., 923 F.2d 245, 248-49 (2d Cir. 1991) (applying federal

5. See Harvey v. Joyce, 199 F.3d 790, 793 (5th Cir. 2000) (in

determining whether the parties agreed to arbitrate their dispute,

court applies federal substantive law of arbitrability to any arbitration

agreement within the coverage of the FAA); Letizia v. Prudential

Bache Secs., Inc., 802 F.2d 1185, 1187 (9th Cir. 1986) (because

issue of whether nonsignatories were bound by the agreement

“involve[d] the arbitrability of a dispute, it is controlled by

application of federal substantive law rather than state law”); Sharon

Steel Corp. v. Jewell Coal and Coke Co., 735 F.2d 775, 777 n.6 (3d

Cir. 1984) (“The ultimate arbitrability of a contract is a matter of

federal substantive law”).

9

law in a diversity case because the suit related to international

commerce); Filanto, S.p.A v. Chilewich Int’] Corp., 789

F. Supp. 1229, 1235-37 (S.D.N.Y. 1992) (applying federal

law in a diversity case to the question of whether a contract

is enforceable in a case arising under the Convention).

In addition, under 9 U.S.C. § 203, the district courts have

original jurisdiction over actions falling under the

Convention, which are “deemed to arise under the laws and

treaties of the United States.” F inally, as the Second Circuit

noted in its Opinion, in actions brought under the Convention

there are:

compelling reasons to apply federal law, which

is already well-developed, to the question of

whether an agreement to arbitrate is enforceable.

See David L. Threlkeld & Co., 923 F.2d at 249-50

(holding Convention and FAA preempt Vermont

Statute); Genesco, Inc. v. T. Kakiuchi & Co., 815

F.2d 840, 845-46 (2d Cir. 1987) (applying federal

common law in case arising under the

Convention); Borsack v. Chalk & Vermilion Fine

Arts, Ltd., 974 F. Supp. 293, 299 n.5 (S.D.NLY.

1997) (“[W]here jurisdiction is alleged under

chapter 2 of the Federal Arbitration Act the issue

of enforceability and validity of the arbitration

clause is governed by federal law”).

Opinion, Pet. App. 15a.

10

C. There is no Basis for Applying New York Law in this

Case

Because the arbitration clauses in the agreements

between the parties demonstrate that the parties intended that

federal law would apply to the enforcement of arbitration,

SCI ignores these clauses and instead asserts that: (1) New

York choice of law rules apply and in turn point to the law

of Turks & Caicos; and (ii) Turks & Caicos law applies

because the parties’ dispute allegedly implicates the internal

affairs of the partnership.°

SCI’s first argument fails for two reasons. First, SCI is

unable to point to a single reference to New York law in any

of the relevant agreements. Thus, as the Second Circuit

properly found, “it is [ ] clear that neither party intended

New York law ... to govern any aspect of their dispute.”

Opinion, Pet. App. 16a. Second, since this is a federal

question case and not a diversity case, no relevant

transactions occurred here and no party is domiciled here,

there is no justification for SCI’s assertion that New York

6. SCI’s assertion that the law of Turks & Caicos dictates that

an assignor loses right to arbitrate, see Petition at 11, is false. Section

6(4) of the Limited Partnerships Ordinance of the Turks & Caicos

Islands does not even address this issue (and the Ordinance cited is

not the 1992 version referenced in the relevant agreements), and

the quotation from the British case cited in the Petition is merely

dicta. In addition, SCI’s citation to Aaron Ferer & Sons Ltd. v. Chase

Manhattan Bank National Ass’n, 731 F.2d 112 (2d Cir. 1984) for

the proposition that an assignor loses the right to arbitrate under

New York law, see Petition at 11, is irrelevant because: (i) Aaron

Ferer had nothing to do with arbitration and (ii) SCI is not even

arguing that New York substantive law applies.

FO i LP EBS Pe!

11

choice of law rules should apply simply because it is the law

of the forum. See id.

SCI’s second argument is equally without merit. The

fact that the 1994 Agreement provides for application of

Turks & Caicos law with respect to internal partnership

affairs. and matters relating to the “organization” of the

partnership is irrelevant. Internal partnership affairs and the

“organization” of the partnership do not include the

arbitrability of contract disputes where the agreements

specifically address that issue and provide for the

applicability of the FAA. In addition, SCI’s argument that

its dispute with Enron is an “internal affairs matter,”

see Petition at 10-11, is inconsistent with the fact that the

Enron Entities are no longer partners and the fact that SCI is

seeking nullification of the agreements.

D. The Second Circuit’s Ruling Does Not Conflict with

Supreme Court Precedent or Decisions in Other

Circuits

The Second Circuit’s holding that federal law — and

not the law of Turks and Caicos pursuant to New York choice

of law rules — determines Enron’s right to invoke arbitration

does not conflict with Supreme Court or other Circuit Court

decisions. None of the cases cited by SCI that applied state

choice of law rules involved either the Convention or

contractual choice of law clauses providing for the

applicability of federal law. In contrast, each of the arbitration

agreements between SCI and the Enron Entities expressly

provide that the FAA applies to the enforceability of

arbitration — the precise issue in this lawsuit — and SCI no

longer contests that this case falls under the Convention. In

addition, none of the cases cited by Petitioner applied a

12

particular state’s law merely because it was the law of the

forum.

Although each case cited in the Petition is irrelevant

because of these important distinctions, many of the cases

are either inapposite or do not support SCI’s position for

additional reasons. For example, SCI’s citation to First

Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), is

irrelevant because the issue in that case was whether the

Kaplans, who had not personally signed an agreement to

arbitrate, had in fact agreed to arbitrate. Here, there is no

dispute that the parties entered into several agreements to

arbitrate. SCI’s citations to Doctor’s Associates Inc. v.

Casarotto, 517 U.S. 681 (1996) and Perry v. Thomas, 482

U.S. 483 (1987), are odd because in both cases this Honorable

Court reviewed a state court judgment and held that the FAA

preempted conflicting state law. SCI’s citations to First

Options, Aaron Ferer & Sons Ltd., 731 F.2d 112, and Gibson

v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130

(7th Cir. 1997), are also curious since these courts conducted

an interest analysis to determine which law should apply;

SCI does not contend that an interest analysis is appropriate.

In Riley Manufacturing Co., Inc. v. Anchor Glass Container

Corp., 157 F.3d 775, 780 n.5 (10th Cir. 1998), the court

applied Florida and Kansas law only because the

manufacturing agreement at issue specified Florida choice

of law and both parties relied on Kansas law for purposes of

the appeal.

In Atherton v. FDIC, 519 U.S. 213 (1997), this

Honorable Court held that there is no federal common law

providing a standard of care for officers and directors of

federally insured savings institutions. Atherton did not

involve arbitration, much less arbitration under the FAA; it

merely stands for the proposition that state law prevails if

13

there is no distinct or conflicting important federal policy or

interest. Here, the strong federal policy in favor of arbitration

compels the application of federal law.

Il.

THE ARBITRATION AGREEMENTS ARE

ENFORCEABLE UNDER FEDERAL LAW

The Enron Entities’ right to arbitrate any disputes with

SCI pursuant to the relevant agreements was not impacted

by their assignments of their interests in the partnership.

SCI’s assertion that the assignments eliminated Enron’s ri ght

to invoke the arbitration agreements is an attempt to have it

both ways. SCI has chosen to sue these same companies in

the Dominican Republic, not their assignees, because SCI’s

dispute is with Enron over precisely the agreements that

contain the arbitration clauses. SCI cannot sue these entities

over these agreements and at the same time claim that the

dispute resolution mechanism in these very agreements is

moot. Moreover, SCI seeks, in part, nullification of these

agreements. Since the claims in the Dominican Lawsuit arose

from actions that took place well before the Enron entities

assigned their interests in the SECLP partnership to their

affiliates, the broad arbitration agreements between the

parties govern their disputes.

Applying federal law, the Second Circuit properly found

that even if it accepted SCI’s assertion that the Enron Entities

are non-signatories to an arbitration agreement with SCI,

arbitration is appropriate. Courts recognize five theories for

binding non-signatories to arbitration agreements according

to “ordinary principles of contract and agency,” including

estoppel and veil-piercing. See Opinion, Pet. App. 16a-17a;

14

Thomson-CSF, S.A. v. American Arbitration Ass 'n., 64 F.3d

773, 776 (2d Cir. 1995); Deloitte Noraudit A/S v. Deloitte

Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993);

McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519,

524 (2d Cir. 1980).

Estoppel is warranted where, as here, a signatory to an

arbitration agreement attempts to resist the arbitration of

claims against a non-signatory which are “intimately founded

in and intertwined with the underlying contract obligations.”

See Sunkist Soft Drinks, Inc. v. Sunkist Growers, Inc.,

10 F.3d 753, 757 (11th Cir. 1993), cert. denied, 513 US.

869 (1994). Under the estoppel theory, a signatory to an

arbitration agreement can be compelled to arbitrate at the

insistence of a non-signatory where the claims to be resolved

in arbitration are “intimately founded in and intertwined with

the underlying contract obligations.” McBro Planning & Dev.

Co. v. Triangle Elec. Constr. Co., 741 F.2d 342, 344

(11th Cir. 1984). The Fourth and Eleventh Circuits have

estopped a signatory from avoiding arbitration with a non-

signatory under these circumstances. See Sunkist, 10 F.3d

753; J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A.,

863 F.2d 315, 320-21 (4th Cir. 1988); McBro Planning, 741

F.2d 342. In each of these cases, the signatories had entered

into arbitration agreements with entities closely related to

the parties asserting arbitration. Similarly, SCI conceded in

its principal brief to the Second Circuit that it is a party to a

“living” arbitration agreement with affiliates of the Enron

respondents. See Brief for Respondent-Appellant at 10.

It is undisputed that SCI (and its affiliate) signed broad

arbitration agreements with the Enron Entities encompassing

“any dispute, disagreement, controversy, or claim arising

under or relating to any obligation or claimed obligation

15

under the provisions of this Agreement.” (JA A35-A37,

Art. [X(4)(a); JA A125-A126, § 11.14; JA A75-A77, § 11.14;

JA A130-A141) (emphasis added). Since SCI indicated its

willingness to arbitrate with each of the Enron Entities at

some point, there is an even greater justification for applying

estoppel here than was the case in Sunkist, J.J. Ryan, and

McBro Planning.

SCI alleges in the Dominican Lawsuit that it was

defrauded and coerced by Enron into becoming a partner in

SECLP. It also requests nullification or rescission of the

agreements between SCI and its related companies and the

“Enron Group.” (JA A145-A146, 4 4, 5). Given the nature

of SCI’s claims against Enron, there can be no question that

the claims are closely related to Enron’s obligations or

claimed obligations under the agreements containing

arbitration clauses. See E.G.L. Gem Lab Ltd. v. Gem Quality

Inst. Inc., No. 97 Civ. 7102 (LAK), 1998 WL 314767, at *3

(S.D.N.Y. June 15, 1998) (granting non-signatory’s demand

for arbitration against a signatory because of the tight nexus

between the claims raised and the claims arising under the

agreement containing the arbitration clause).’

The Second Circuit also correctly determined that the

particular circumstances present here justify allowing Enron

to invoke arbitration under the agreements. As noted in the

Opinion, even SCI refers to the related Enron companies in

its complaint in the Dominican Lawsuit as the “Enron

Group,” “affiliates,” and “Enron,” as “though they were

7. We note that the Second Circuit properly determined that

SCI is estopped from avoiding arbitration as a matter of law. The

Sunkist court observed that the issue of whether the signatory is

estopped from contesting the non-signatory’s standing to invoke the

clause is a question of law. Jd.

16

interchangeable.” Pet. App. 18a. In addition, because it is

the Enron Entities that are requesting arbitration, a court need

not be “wary of imposing a contractual obligation to arbitrate

on a non-contracting party.” Jd. at 17a. As noted above,

however, the Court’s determination on this issue was not

necessary to its holding.

Since the Enron Entities and SCI are signatories to

arbitration agreements encompassing the dispute in the

Dominican Lawsuit, there are additional bases under federal

substantive law for compelling arbitration despite the

assignments among Enron affiliates. These arguments were

set forth in Enron’s briefs to the Second Circuit. They were

not addressed in Second Circuit’s Opinion because the Court

found that SCI should be compelled to arbitrate even if the

Court accepted SCI’s argument that the Enron Entities should

be treated as non-signatories. Since we believe that these

arguments provide an alternative basis for the Second

Circuit’s ruling, we repeat them here.

In Vainqueur Corp. v. Lamborn & Co., 305 F. Supp.

1007, 1008 (S.D.N.Y. 1969), the court granted a petition to

compel arbitration of a dispute arising from respondent’s

refusal to pay certain freights claimed to be due under an

agreement even though petitioner irrevocably assigned its

right to receive payment for those freights.

The court found that, despite the assignment, petitioner

was still a “party aggrieved” under § 4 of the FAA by the

failure of respondent to arbitrate and noted:

When there is a specific written agreement to

arbitrate any dispute that may arise out of an

agreement, and one of the parties to that

17

agreement fails to comply with its terms, the other

party is entitled to an order compelling

arbitration even if that party has irrevocably

assigned its rights under the agreement.

Id. (emphasis added). Tlius, Enron is “aggrieved” by SCI’s

failure to arbitrate and is entitled to an order compelling

arbitration despite the assignments.®

In addition, the Second and Fifth Circuits have both

permitted the arbitration of a dispute between a party that

has assigned its rights under a contract and the other party

to the original agreement without commenting on the fact

that an assignment was made. See Lachmar v. Trunkline LNG

Co., 753 F.2d 8 (2d Cir. 1985) (assignee of a shipping

company’s rights under a contract was not an indispensable

party to an arbitration between the assignor shipping

company and the other party to the contract, the shipper);?

Tenneco Resins, Inc. v. Davy Int'l, A.G., 770 F.2d 416, 417,

422 (Sth Cir. 1985) (directing district court to enter an order

staying litigation pending arbitration under the contract

8. SCI cannot have it both ways. It cannot commence an action

containing claims for fraud and fraudulent inducement against the

assignors of agreements in connection with the assigned agreements

and at the same time ask this Honorable Court to ignore the

arbitration clauses of those very agreements which provide the

appropriate means to resolve precisely those claims.

9. The court in Lachmar applied New York law with respect

to an assignee’s duty to arbitrate because, as a related case notes,

Trunkline LNG Company and Lachmar “expressly provided that

New York law would govern [their 1996] Transportation

Agreement” — the same agreement at issue in the Lachmar case.

United States v. Panhandle Eastern Corp., 693 F. Supp. 88, 95

(D. Del 1988).

18

between appellant and appellee even though appellee’s

“rights and obligations under this contract were subsequently

assigned to” another party).

Further, termination of a contract does not extinguish a

party’s rights and duties under an arbitration clause contained

in a contract. This Honorable Court has held that a claim

that involves facts and occurrences which arose before

expiration of an agreement, can be said to arise under the

contract and thus is arbitrable. Litton Fin. Printing Div. v.

NLRB, 501 U.S. 190, 205-06 (1991); see Monroe Sander

Corp. v. Livingston, 377 F.2d 6, 10 (2d Cir.), cert. denied,

389 U.S. 831 (1967) (arbitration clause ordinarily survives

expiration of the agreement that contains it and governs any

dispute that arises out of the agreement).

Courts in the Second Circuit uniformly compel

arbitration where a dispute involves facts and circumstances

that arise before termination or expiration of an agreement.

See, e.g., American Diagnostica of Connecticut, Inc. v.

Centerchem, Inc., No. 94 Civ. 7047 (DC), 1996 WL 71494,

at *4n.2 (S.D.N.Y. Feb. 20, 1996); Acquaire v. Canada Dry

Bottling, 906 F. Supp. 819, 832-33 (E.D.N.Y. 1995)

(expiration of distributor’s agreement had no bearing on the

arbitrability of plaintiffs’ causes of action, which arose from

events that occurred prior to expiration); Jnsta-Bulk, Inc. v.

Powertex Inc., 764 F. Supp. 52, 53-54 (S.D.N.Y. 1991)

(rejecting defendant’s argument that the arbitration clause

of a license agreement could no longer be invoked because

defendant had terminated the agreement, since “obligations

to arbitrate can survive contract expiration,” and directing

parties to promptly invoke arbitration procedure). Here, since

the events giving rise to the dispute in the Dominican Lawsuit

occurred prior to both the termination by assignment of the

19

relationship between the parties as partners in the SECLP

partnership and the superceding of the earlier agreements,

all of SCI’s claims are arbitrable.

Moreover, since the language of the arbitration c!auses

is broad and does not contain any temporal limitations, the

strong federal policy in favor of arbitration requires that SCI

be compelled to arbitrate the claims made in the Dominican

Lawsuit. See Butchers, Food Handlers & Allied Workers

Union v. Hebrew Nat’l Kosher Foods, Inc., 818 F.2d 283,

287 (2d Cir. 1987) (“If the contract does not state that the

duty to arbitrate ends with the termination of the contract,

the strong policies favoring arbitration should ordinarily lead

the court to conclude that the obligation to arbitrate —

especially as to claims that accrued during the term of the

contract — survives the expiration of the contract”); Coenen

v. R.W. Pressprich & Co., 453 F.2d at 1212 (arbitration

applied to actions predating the signing of the contract by

the petitioner because the contract stated that it governed

“any controversy” between the parties).'° As the Second

Circuit stated in its Opinion, “the relevant inquiry is whether

SCI’s claims ‘relat[e] to any obligation or claimed obligation

10. As stated by this Honorable Court, “the parties failure to

exclude from arbitrability contract disputes arising after termination,

far from manifesting an intent to have arbitration obligations cease

with the agreement, affords a basis for concluding that they intended

to arbitrate all grievances arising out of the contractual relationship.”

Nolde Bros., Inc. v. Local No. 358, Bakery & Confectionery Workers

Union, AFL-CIO, 430 U.S. 243, 255 (1977); see AT&T Techs., Inc.

v. Communications Workers of America, 475 U.S. 643, 650 (1986)

(quoting United Steelworkers of America v. Warrior & Gulf

Navigation Co., 363 U.S. 574, 584-585 (1960)) (“[i]n the absence

of any express provision excluding a particular grievance from

arbitration, we think only the most forceful evidence of a purpose

to exclude the claim from arbitration can prevail”).

20

under’ the 1994 agreement, not when they arose. We think

it is evident that SCI’s claims in the Dominican Lawsuit fall

within this broad language.” Pet. App. 21a.

Since an arbitration clause survives the agreement

containing it under federal law absent a termination provision

plainly specific to the arbitration clause, the arbitration

agreements between Enron and SCI survived any assignment

or superceding agreement. See Dobson v. Counsellors Secs.,

Inc., No. 94-CV-73942-DT, 1995 WL 871004, at *6 (E.D.

Mich. Sept. 13, 1995) (citing United Steelworkers of

America, 363 U.S. at 584-85).

CONCLUSION

For all of the foregoing reasons, Respondents

respectfully request that this Honorable Court deny the

Petition.

Respectfully submitted,

GREGORY MARKEL

Counsel of Record

RoNIT SETTON

BROBECK, PHLEGER & HARRISON LLP

Attorneys for Respondents

1633 Broadway, 47th Floor

New York, New York 10019

(212) 581-1600