Soaring Wind Energy LLC v Catic USA Inc - United States Court of Appeals for the Fifth Circuit - Case No 18-11192 5th Cir 2020 - 07 January 2020
Country
Year
2020
Summary
Catic USA,[1] a California corporation with Chinese corporate parentage, appeals the confirmation of an adverse arbitral award. Having determined that this court has jurisdiction, we affirm: The arbitration panel was fairly constituted and did not exceed its authority.
I.
A dispute among members of Soaring Wind Energy, LLC (sometimes called "the LLC"), was submitted to an arbitration panel, which awarded the LLC $62.9 million against Catic USA (and its AVIC-group affiliates) and ordered that Catic USA be divested of its shares in the LLC without compensation. A judgment of the district court confirmed that award. Catic USA, joined by its various Chinese affiliates, appeals.
The origins of Soaring Wind Energy trace to 2007, when representatives of Tang Energy Group ("Tang Energy") and Catic USA began talks of creating a vehicle for wind-energy marketing and project development. They confirmed those talks in a Memorandum of Understanding, which the Soaring Wind Agreement (the "Agreement") superseded.
The Agreement created the LLC, whose "business" would be "to provide worldwide marketing of wind energy equipment, services and materials related to wind energy, including, but not limited to, marketing wind turbine generator blades and wind turbine generators and developing wind farms." Each member agreed to "conduct activities constituting the Business [only] in and through [Soaring Wind] and its Controlled subsidiaries." Class A members agreed that such prohibition extended to their affiliates.
The Agreement also outlined a procedure for resolving disputes. Under its terms, "any controversy, dispute, or claim arising under or related to [the Agreement]," after failed attempts at negotiation, "shall be submitted to binding arbitration." Each "Disputing Member"--defined as "each Member that is a party to [the] Dispute"--would then have the opportunity to name its own arbitrator. Those selected as arbitrators would themselves choose an additional arbitrator (or two additional arbitrators if necessary to achieve an odd number). The panel would have the authority "to grant injunctive relief and enforce specific performance" and to issue a final, court-enforceable decision, though it would lack "authority to award special, exemplary, punitive or consequential damages."
After years without Catic USA's providing Soaring Wind any financial support, a representative from Tang Energy requested that one of Catic USA's Chinese AVIC-group affiliates[2] help fund Soaring Wind. An AVIC representative responded that "AVIC International has already provided a total of 50 million USD in financing to wind power projects in the US and will keep[] trying in the future." Paul Thompson--himself a Class B member of Soaring Wind--served as president and CEO of one such affiliate,[3] through which the AVIC group appeared to have invested millions of dollars in wind power project development.[4]
Tang Energy subsequently demanded arbitration against Catic USA, Thompson, and Catic USA's non-signatory corporate affiliates. Among other things, Tang claimed that Catic USA had breached the Agreement through the actions of its Chinese corporate affiliates. Tang named its arbitrator in its demand, and the four remaining Class A members[5] joined Tang in the dispute and, accordingly, named their respective arbitrators. Catic USA and Thompson answered Tang's demand and named their own arbitrators, but Catic USA's non-signatory Chinese affiliates refused to participate in the arbitration. As the Agreement required, the seven selected arbitrators then collectively appointed two more.
Catic USA and Thompson preemptively sued the claimants in federal court, seeking a declaratory judgment that the panel was improperly constituted.[6] Specifically, they claimed both that fundamental fairness and the Agreement required each side of the dispute to select an arbitrator, who would then select a third and final arbitrator. The district court dismissed those claims for lack of subject matter jurisdiction under the FAA.[7] Catic USA and Thompson made similar arguments before the arbitration panel, which determined for itself that it was constituted according to the Agreement's unambiguous terms.
After a five-day hearing, the arbitration panel issued its final award in favor of the claimants. The panel determined that "Catic USA breached the [Soaring Wind] Agreement by its Affiliates engaging in the `Business' of [Soaring Wind Energy]." It further found that the AVIC group, including Catic USA, "operate[d] as one entity" and that "AVIC HQ and its wholly owned subsidiaries created additional subsidiaries in an attempt to get around its promises made in the [Soaring Wind] Agreement to Claimants." The panel concluded that Catic USA and its non-signatory Chinese affiliates should be held "jointly and severally liable to [Soaring Wind] in the amount of $62.9 USD million" in lost profits owed to the LLC.[8]
The arbitration panel noted that "[t]he lost profits set forth in [its] award are due to [Soaring Wind Energy] for distribution to the Claimants through their percentages set forth in the [Soaring Wind] Agreement." The panel did not, however, stop at ordering that Catic USA pay the monetary damages: "[I]n order to prevent [Catic] USA and Thompson from profiting from their breaches of the [ ] Agreement," the panel wrote, "they should be prohibited from receiving any profit from any award to [Soaring Wind]." Thus, in addition to the $62.9 million damages, the panel ordered that "[Catic] USA and Thompson's equity interest in [Soaring Wind] should be divested . . . ."[9]
The claimants sought judicial confirmation of the arbitral award against Catic USA and its Chinese affiliates. At the claimants' request, the district court bifurcated the proceedings, staying the case against the Chinese entities.[10] The court then confirmed the award in its entirety against Catic USA.
...
[1] Catic USA is also known as AVIC International USA.
[2] Two years after Catic USA signed the Agreement, its parent company formed AVIC International Renewable Energy Corporation ("AVIC IRE") as a majority-owned subsidiary. AVIC IRE's stated purpose, like Soaring Wind's, included developing wind power projects.
[3] Thompson ran Ascendant Renewable Energy Corporation ("Ascendant"), which itself funded at least one major wind farm project to completion between 2011 and 2012. Ascendant was formed as a wholly owned subsidiary of AVIC IRE.
[4] The arbitration panel found that AVIC IRE or its subsidiaries had developed at least five wind turbine projects in the United States, with additional projects located abroad.
[5] Appellees Young, Carter, Jan Family Interests, and the Nolan Group.
[6] One of Catic USA's non-signatory affiliates also preemptively sued the claimants, successfully obtaining a judgment declaring that its "party status to the arbitration [could] only be determined by a court, and not an arbitrator . . . ." Ascendant Renewable Energy Corp. v. Tang Energy Grp., Ltd., No. 3:14-CV-3314-K, 2015 U.S. Dist. LEXIS 103518, at *8 (N.D. Tex. Aug. 4, 2015).
[7] AVIC Int'l USA, Inc. v. Tang Energy Grp., Ltd., No. 3:14-CV-2815-K, 2015 U.S. Dist. LEXIS 13968 (N.D. Tex. Feb. 5, 2015), aff'd, 614 F. App'x 218 (5th Cir. 2015) (per curiam).
[8] The panel arrived at that amount by accepting AVIC IRE's vice president's admission that the AVIC group had invested $50 million in wind power projects in the United States. At an anticipated 15% rate of return, the discounted present value of the $50 million investment was $62.9 million.
[9] The panel allowed Catic USA a $350,000 credit for its initial capital contribution to Soaring Wind.
[10] That case, relating most importantly to the Chinese entities' joint and several liability for Catic USA's damages, remains stayed pending the resolution of this appeal.