Opinion
Civil Action No. 99-2204 SECTION "A"
July 24, 2000
ORDER DISMISSING BRIGGS' COUNTERCLAIM AND WRITTEN REASONS
Before the Court is plaintiff Consorcio Rive, S.A.'s ("Rive") Motion to Dismiss the defendant Briggs of Cancun, Inc.'s ("Briggs") counterclaims. The matter was thoroughly briefed the Court having received both formal opposition and a reply brief. The matter was noticed for hearing on July 19, 2000 but was deemed submitted for decision on the briefs. The Court has treated the plaintiff's Motion to Dismiss Briggs' Counterclaims as one for summary judgment since it raises matters outside of the pleadings. There being no disputed issues of material fact the Court grants plaintiff's motion and dismisses Briggs' counterclaims for the reasons set forth herein below.
CONTENTIONS OF THE PARTIES
Rive contends that its $2,500,000 plus Mexican arbitration award isres judicata. Briggs' counterclaims are barred, and in any event, its counterclaims in connection with the subject contracts must be arbitrated in Mexico per the written operative contracts.
Briggs filed formal opposition arguing first, that its counterclaim is not barred by res judicata since the subject arbitration award which Rive seeks to enforce is not a final judgment; and second, that the arbitration agreement was terminated or waived.
Briggs argument is that since the arbitration award has not been confirmed by any court, it can have no preclusive effect for purposes of res judicata.
The thrust of Briggs' argument is that when Rive terminated the contract/agreement, Rive also extinguished the obligation to arbitrate agreements arising out of the terminated agreements. Additionally, Briggs contends that Rive filed "procedural fraud claims" against Briggs and the alleged making of such fraud claims constitutes a waiver of Rive's right to insist on arbitration of disputes.
Rive formally replied to defendant Briggs' opposition noting whereas here there is a final judgment on the merits in the arbitration proceedings [Exhibit B to Rive' s Complaint], identical parties, and the cause of action raised in arbitration and the judicial proceeding arise out of the same transaction or occurrence [that is, the October 1, 1991 Agreement (Exhibit A to Rive's Complaint}], then Briggs' counterclaims are barred as a matter of law. Rive further notes the Supreme Court case which stands for the proposition that unless the contracting parties include a provision in the contract or agreement which would terminate the parties's contractual obligation to arbitrate all disputes arising out of the contract upon termination of the contract itself, the arbitration agreement is presumed to have survived the contract's termination. Finally, as to Briggs waiver argument, Rive notes the absence of any alleged "procedural fraud claims" in its complaint as well as the absence of any reference to any such procedural fraud claims in Briggs' counterclaim.
Noble Brothers. Inc. v. Local No. 358, 97 S.Ct. 1067, 1071-72 (1977).
BACKGROUND AND ANALYSIS
The instant case is an action filed by Consorcio Rive ("Rive") to enforce an arbitration award under Mexican law against the defendant Briggs. Briggs' action for nullity filed in Mexico has been dismissed. Rive aptly argues that the counterclaim now filed by Briggs in the captioned matter is barred by res judicata.
Briggs successfully negotiated with Briggs for use of its land leased from the Mexican Government. Briggs opened a restaurant in Cancun, Mexico on the government land. The Rive/Briggs agreement required that any dispute be arbitrated under Mexican law. Pursuant to one such dispute, in June of 1998, an arbitration panel in Mexico awarded the instant plaintiff Rive a total of more than $2,500,000.
It is not disputed that all three agreements entered into by the parties (i.e., the Agreement, then the Management and the Commodatum Agreements) called for dispute resolution by arbitration pursuant to the rules of the Inter-American Commercial Arbitration Commission and the laws of Mexico. All three agreements provide:
Briggs' Exhibit 1.
Briggs' Exhibit D.
Briggs' Exhibit C.
Any controversy or claim arising out of, or related to, this agreement, or the making, performance, or interpretation thereof, shall be finally settled by arbitration pursuant to the then prevailing rules of the INTERAMERICAN COMMERCIAL ARBITRATION COMMISSION and the arbitrators shall be appointed in accordance with such rules. All arbitration proceedings shall take place in Monterrey, N.L., Mexico, and the laws applicable to the arbitration procedure shall be the laws of Mexico. The award of the arbitrator shall be the sole and exclusive remedy between the parties regarding any claims, counterclaims, issues, or accountings presented or pled to the arbitrator; shall be made and shall promptly be payable free of any tax, deduction, or offset; and any costs, fees, or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against any party resisting such enforcement. Judgment upon the award of the arbitrator may be entered in the court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the award or an order of enforcement. The prevailing party in any such arbitration shall be entitled to recovery of all administration fees and arbitration fees paid. All other costs expenses and fees incurred by either party in connection with such arbitration (including attorney's fees incurred) shall be borne by the party so incyurring[sic] such fees.
See, October 1, 1991 Agreement [Briggs' Exhibit 1]
Rive seeks enforcement of its $2,500,000 arbitration award. Via counterclaim, Briggs seeks to defend against such enforcement claiming that: (1) Rive defaulted on the FONATURE lease by failing to meet its rental obligations; (2) illegally subleased part of the property without permission; (3) failed to obtain adequate insurance; (4) failed to obtain a sufficient rental bond; and (5) all of the foregoing actions allegedly causing damage to Briggs.
The subject complaint to enforce the Mexican arbitral award against Briggs was filed by Rives pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "Convention"), codified at 9 U.S.C. § 201 et seq. Both Mexico and the United States are signatories of the Convention negotiated pursuant to the Treaty Power delineated in the United States Constitution. Congress passed enabling legislation making the Convention law, which must be enforced over all prior inconsistent rules of law.
Under Article III of the Convention, "[e]ach Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon . . . ." An action or proceedings falling under the Convention is deemed to arise under the laws and treaties of the of the United States. 9 U.S.C. § 203. Federal district courts have original jurisdiction over such an action, and venue is proper in any district in which, save for the arbitration agreement, an action or proceeding with respect to the controversy between the parties could be brought, or in such district which embraces the place designated in the agreement as the place of arbitration if such a place is within the United States. 9 U.S.C. § 204.
As plaintiff in this case aptly points out, according to the Convention recognition and enforcement may be refused if the party resisting enforcement proves one of the following under either Article V(1) or V(2), to wit:
ARTICLE V(1)(a)-the parties to the agreement were under some incapacity, to the agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or (b)-the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c)-the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration; however, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or (d)-the composition of the arbitral authority or arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or (e)-the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law which, that award was made. ARTICLE V(2)(a)-the subject matter of the difference is not capable of settlement by arbitration under the law of that [the forum] country; or (b)-the recognition or enforcement of the award would be contrary to the public policy of that [the forum] country.
None of the above available defenses to the instant complaint seeking to enforce the Mexican arbitral award in Rive's favor are the subject of Brigg's counterclaim. Instead, Briggs raises a panoply of allegations relative to Rive's alleged breach in 1995 of the parties' Agreement. The Agreement unambiguously provides that all claims must be raised in the arbitration proceeding including claims, counterclaims, issues, or accountings. According to the Agreement, arbitration is the sole and exclusive remedy. After initial papers were filed in the arbitration proceedings and having notice thereof, Briggs did not participate in the proceedings by asserting any available defenses, in the nature of set-off or otherwise, and did not counterclaim against Rive in the context of the arbitration proceeding.
In Schlumberger Technology Corporation v. United States, 195 F.3d 216, 220 (5th Cir. 1999), the Fifth Circuit took great pains to explain the difference between when the right to receive/execute vests under an arbitral award and when an arbitral award is final/res judicata such that a foreign court may not alter the award. The Schlumberger court explained that "even though a foreign arbitral award is res judicata between the parties as to the merits (and a foreign court cannot alter the award) that court can refuse to enforce the award. . . ." Id. Simply stated, confirmation of the foreign arbitral is not necessary for purposes of itsres judicata effect. However, the final award (i.e., final for purposes of res judicata) is not self-executing. The fixed right to receive does not exist with respect to a foreign arbitral award until it is converted by confirmation into a judicial judgment.
In this decision, the term res judicata refers to "claim preclusion" — that is, the preclusive effect of a judgment/final foreign arbitral award in foreclosing litigation of matters that were or could have been raised in the earlier arbitration. This concept is to be distinguished from "collateral estoppel" or issue preclusion, which refers to the effect of a judgment in foreclosing relitigation in a subsequent action of an issue of law that has been actually litigated and decided in the initial proceeding. Both doctrines (i.e., res judicata and collateral estoppel) apply to arbitration awards.
See, Marrese v. American Academy of Orthopaedic Surgeons, 105 S.Ct. 1327, 1329 n. 1 (1985); Bremer v. Chemical Construction Corp., 102 S.Ct. 1883, 1886, n.E (1982)
Benjamin v. Traffic Executive Association Eastern Railroads, 869 F.2d 107 (2nd Cir. 1989)
In the case at bar, it cannot be seriously disputed that the arbitration award with accompanying written memorandum is a final decision on the merits and that Briggs was a party to that proceeding. The doctrine of res judicata operates to bar claims where a party had a full and fair opportunity to litigate. Briggs had the opportunity to litigate its counterclaims in the arbitration proceedings. Briggs received notice of the arbitration proceedings and even filed an answer. Briggs, however, did not participate thereafter, and Rive proceeded with the arbitration and obtained a substantial award in its favor.
Exhibit B of Rive's Complaint.
Unquestionably, Briggs' counterclaims which arise out of the same transaction/occurrence, involves the same Agreement with respect to the very same property. Clearly the facts are related in time, space, origin and motivation, that is because they arise out of the same contractual agreement previously examined by the Mexican arbitrators.
The facts before this Court present no ambiguity. Although Briggs was aware of its counterclaims, such were not presented to the arbitrators. The arbitrators did not refuse to consider Briggs' counterclaims, prevent Briggs from making any counterclaim or preclude Briggs' participation in proceedings before the arbitration panel. Briggs, having notice of the proceedings, simply answered and did not participate in the arbitration proceedings thereafter. Briggs never presented any of his counterclaims to the arbitration panel.
Defense counsel's argument admits as much, he writes:
[T]here is no evidence to suggest that Briggs' counterclaims were ever considered by the panel. Briggs filed an Answer in the arbitration proceedings which presented its defenses to Rive's claims. There were no further pleadings filed by Briggs in those proceedings alleging counterclaims for Rive's breaches of the Agreement. In making its award, the arbitration panel addressed only those issues raised by Rive's claims, and did not include any reference to the counterclaims alleged by Briggs in this action.
Briggs' Memorandum in Opposition, p. 9.
Briggs' counterclaims could have been and should have been raised in the original arbitration. Regardless of the approach, whether transactional or utilizing the standard set forth for compulsory counterclaims in FRCP Rule 13a, both of which comport with purposes of the arbitration and the res judicata doctrine, Briggs' counterclaims are barred.
Long-ago the United States Supreme Court shot down the argument that defense counsel now makes (i.e., that the duty to arbitrate necessarily expires with the contract that brought it into existence) . Rejecting that argument in Nolde Bros., Inc. v. Local No. 358, Bakery and Confectionery Workers Union, AFL-CIO, 97 S.Ct. 1067, 1071-72 (1977), the Supreme Court observed that:
Carried to its logical conclusion that argument would preclude the entry of a post-contract arbitration order even when the dispute arose during the life of the contract but arbitration proceedings had no begun before termination. The same would be true if arbitration processes began but were not completed, during the contract's term. Yet it could not seriously be contended in either instance that the expiration of the contract would terminate the parties' contractual obligation to resolve such a dispute in an arbitral, rather than a judicial forum.Id.
It is thus well-settled that contracting parties' obligations under the arbitration clause survive contract termination unless the agreement itself otherwise indicates. Regardless of which agreement the Court refers to in the instant case, where as here the dispute is over an obligation arguably created by the terminated agreement, the obligation to arbitrate survives and Briggs must bring its counterclaims in arbitration, since a lawsuit is the antithesis of the Agreement of the parties. Id.
All three agreements set forth identical arbitration clauses as mentioned at the outset.
In other words, the fact that Briggs' waited until after the Agreement was terminated and the arbitration award was final to bring its counterclaims is not dispositive of their arbitrability. More to the point, contract termination does not control arbitrability. Finally, Briggs points to nothing which would support construing the Agreement of the parties to mean that their obligation to arbitrate disputes arising under the contract would expire upon termination of the Agreement itself.
Similarly the Court is not persuaded by Briggs' one-paragraph waiver argument. Briggs' submission is devoid of any documentary or other evidentiary support which would support a finding of waiver. The only exhibits filed in opposition to Rive's Motion to Dismiss Counterclaim were: (1) Briggs' Exhibit 1 — the October 1, 1991 Agreement with attachments, (2) Briggs' Exhibit 2 — the Fonatur Lease, (3) Briggs' Exhibit 3 — Acta De Entrega-Recepcion, and (4) Briggs' Exhibit 4 and 5 — this Court's November 5th, 1999 Order and Reasons and January 28, 2000 Order and Reasons entered in the captioned action to enforce arbitration award. The Court cannot ignore the fact that even the defendant's counterclaims do not address the alleged "procedural fraud claims" filed in some Mexican civil court. Briggs attaches no documents and draws this Court's attention to no evidence other than its bare assertion that Rive waived its right to arbitrate. On the slim thread of argument, the Court cannot find Rive waived its right to arbitrate. On that issue Briggs bears the burden of proof.
Waiver of arbitration is not a favored finding and there is a strong presumption against it." Moreover, any doubt must be resolved in favor of arbitration. which would trump a finding of waiver based upon this record — a record which is devoid of any evidentiary support for the Briggs assertion. Briggs bears the burden of proof and has not begun to prove the existence of an earlier Mexican civil action filed by Rive against Briggs with respect to the Agreement. Simply stated, the defendant Briggs has not come forward with so much as one iota of evidence of one civil action filed by Rive in Mexico earlier than or contemporaneous with the arbitration proceedings. Rive's present action is in fact aimed at enforcing the Mexican arbitration award in its favor which is considered final under the applicable law.
See, Lawrence v Comprehensive Business Services, Co., 833 F.2d 1159, 1164 (5th Cir. 1987)
Id. (citing Moses H. Cone Memorial Hospital)
There is no evidence in the record which indicates that there was ever a civil suit filed in Mexico against Briggs. The Court however notes that the arbitration panel's decision mentions the existence of a criminal record, the "Defintive Laudum" reads in pertinent part:
Notwithstanding that during the development of the arbitration both were given a legitimate defense opportunity, the filing of evidence which they deemed convenient and that of allegations, the defendant did not submit enough evidence to disprove the complementary claims by the Plaintiff, besides the defendant refused to participate in the arbitration because of criminal records. . . .See, Arbitration Panel Decision entitled "Definitive Laudum, [Exhibit B to Rive's Complaint] (emphasis added).
For all of the above and foregoing reasons, this Court believes that plaintiff's counterclaims are barred.
Accordingly,
IT IS ORDERED that the defendant Briggs' Counterclaim is DISMISSED since it is barred by res judicata.