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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2000
- **Citation:** 531 U.S. 815

## Text

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.

ee

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386014_1071%3A2. Public record. Not legal advice.