Civil Action No. 3:01-CV-1140-G.
May 26, 2004
Before the court are the motions of the defendants Agral Arrendadora, S.A. de C.V. and Agral Inmobiliaria, S.A. de C.V., and the defendant Grupo Embotellador Noreste, S.A. de C.V. ("GEN"), to dismiss this case, pursuant to FED. R. CIV. P. 12(b)(1), for lack of subject matter jurisdiction. For the reasons set forth in detail below, the defendants' motions are granted.
This case is on remand from the Court of Appeals. A complete statement of the factual and legal background of the case can be found in the October 22, 2002, memorandum order of this court, International Transactions, Ltd. v. Embotelladora Agral Regiomontana, S.A. de C.V., 277 F. Supp.2d 670, 672-75 (N.D. Tex. 2002) (Fish, Chief J.) ( "ITL I"), and the October 20, 2003, opinion of the Court of Appeals, International Transactions, Ltd. v. Embotelladora Agral Regimontana, S.A. de C.V., 347 F.3d 589, 591-93 (5th Cir. 2003) ( "ITL II").
International Transactions, Ltd. ("ITL") brings this suit against five Mexican companies (collectively, the "Agral defendants") seeking an order confirming an arbitration award. See Second Amended Complaint ("Complaint") ¶ 18. According to the complaint, ITL entrusted ten million dollars to Sharp Capital, Inc. ("Sharp") to invest in the purchase of a promissory note (the "Note") originally issued by one of the Agral companies, Embotelladora Agral Regimontana, S.A. de C.V. ("Embotelladora"), to NationsBank. Id. ¶ 10; see also Response to Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction and Memorandum in Support Thereof ("Response") at 3. The remaining Agral companies guaranteed the Note. Complaint ¶ 10. The Note contained an arbitration clause requiring that any disputes between Sharp ( i.e., the holder of the note) and the Agral defendants be resolved through arbitration. See Promissory Note, located in Appendix to Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction ("Appendix to Motion") at 7-10; Complaint ¶ 10.
ITL is a Cayman Islands corporation. See Second Amended Complaint.
The five Mexican companies are Agral Arrendadora, S.A. de C.V., Agral Inmobiliaria, S.A. de C.V., Embotelladora Agral Regiomontana, S.A. de C.V., Embotelladora Agral de la Laguna, S.A. de C.V., and Agral Comisionista y Distribuidora, S.A. de C.V. The Agral defendants are all Mexican corporations. See Complaint ¶¶ 2-6.
On April 1, 2002, ITL added as a defendant Pepsi-Gemex, a Mexican corporation which — according to ITL — has acquired the Agral defendants. Complaint ¶¶ 7, 14.
Sharp is a Texas corporation with its principal place of business in Texas. Notice of Removal ¶ 8 n. 22.
Embotelladora defaulted on the promissory note in 1996. Id. ¶ 11. Shortly thereafter, Sharp — acting pursuant to the arbitration clause in the Note — initiated arbitration proceedings against the Agral defendants with Judicial Arbitration and Mediation Services ("JAMS") in Dallas, Texas. Id. On January 31, 1997, an arbitration award of more than eleven million dollars was entered in favor of Sharp (the "Award"). Id. ¶ 12. See also Notice of Removal ¶ 2; Response at 4. ITL was not a party to the arbitration proceedings and, in fact, either permitted or directed Sharp to proceed independently. See Response at 1-2; Surreply to Reply Brief in Support of Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction at 2.
During the arbitration proceedings, ITL was simply referred to as the "Unknown Investor." See JAMS Memorandum and Order on Motions and Requests, and Responses Thereto, at Pre-Hearing Conference at 3-6 (issued Oct. 4, 1996) ("JAMS Memorandum Order"), attached to Appendix to Reply as Exhibit 8.
On August 31, 1998, Sharp assigned the Award and the Note to Jose Treviño Cañamar ("Cañamar"), a Mexican attorney working in Monterrey, Mexico, in exchange for an account of Bridgestone, Inc. and payment of Sharp's legal fees. See generally Sharp-Cañamar Assignment, located in Appendix to Motion at 52-62; see also Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction ("Motion") at 5; Response at 6; Supplemental Appendix to Reply Brief in Support of Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction ("Appendix to Reply") at 2. On September 9, 1998, Cañamar assigned the same arbitral award and note to Grupo Embotellador Noreste, S.A. de C.V. ("GEN") in exchange for 55 million pesos. See Appendix to Motion at 71, 87. Sharp, Cañamar, and GEN signed on September 9, 1998 a "Master Agreement" releasing all claims against each other and against the Agral defendants. See id. at 86.
On January 9, 2004, ITL added GEN, a Mexican corporation the Agral companies merged into, as a defendant in this suit. See Complaint ¶ 8. "The end result of the [a]ssignments and the merger was that the debtor under the Award and the purported owner of the Award became one." ITL II, 347 F.3d at 592.
The assignment between Sharp and Cañamar and between Cañamar and GEN, as well as the execution of the Master Agreement between Sharp, Cañamar, and GEN, took place in Mexico. Appendix to Motion at 52, 71, 86-87.
On February 4, 1999, ITL brought suit against Sharp and Mauricio A. Gutierrez ("Gutierrez"), Sharp's President, seeking to regain custody of the arbitration award. In that case, Judge Barbara M.G. Lynn of this court dismissed, on January 31, 2001, all of ITL's claims against Sharp and Gutierrez but ordered the Special Master for the Sharp Estate to convey the arbitration award to ITL. Memorandum Order and Judgment, filed January 31, 2001, in International Transactions Limited v. Gutierrez, No. 3:99-CV-0241-M (N.D. Tex.) (Lynn, J.). ITL thereafter brought the present action to enforce payment of the arbitration award.
The Agral defendants contend that ITL was actually assigned nothing by the Special Master because Sharp had already assigned its rights in the award to Cañamar, who then assigned them to GEN. Notice of Removal ¶ 6.
On April 12, 2002, two of the Agral defendants — Agral Arrendadora and Agral Inmobiliaria — filed this motion to dismiss the case for lack of subject matter jurisdiction. See generally Motion. The court originally granted the motion on grounds of international comity. See ITL I, 277 F. Supp.2d at 678-81. The Court of Appeals, however, vacated and remanded that order, concluding that the Agral defendants had not demonstrated that ITL and/or Sharp was afforded notice and an opportunity to be heard in the proceedings leading to the Mexican bankruptcy court's decision. See ITL II, 347 F.3d at 591. The Court of Appeals directed this court to consider the Agral defendants' alternate arguments concerning defects in subject matter jurisdiction. Id. at 596.
On April 2, 2004, GEN filed a motion to dismiss for lack of subject matter jurisdiction, incorporating by reference the arguments and factual allegations made in the related pleadings filed by the Agral defendants. See generally Defendant Grupo Embotelladora Noreste, S.A. de C.V.'s Motion to Dismiss for Lack of Subject Matter Jurisdiction and Lack of Personal Jurisdiction.
II. ANALYSIS A. Subject Matter JurisdictionRule 12(b)(1) of the Federal Rules of Civil Procedure authorizes the dismissal of a case for lack of jurisdiction over the subject matter. See FED. R. CIV. P. 12(b)(1). On a Rule 12(b)(1) motion, which "concerns the court's `very power to hear the case . . . [,] the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case.'" MDPhysicians Associates, Inc. v. State Board of Insurance, 957 F.2d 178, 181 (5th Cir.) (quoting Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.), cert. denied, 454 U.S. 897 (1981)), cert. denied, 506 U.S. 861 (1992). A party seeking relief in a federal district court bears the burden of establishing the subject matter jurisdiction of that court. United States v. Hays, 515 U.S. 737, 743 (1995); McNutt v. General Motors Acceptance Corporation of Indiana, 298 U.S. 178, 189 (1936); Langley v. Jackson State University, 14 F.3d 1070, 1073 (5th Cir.), cert. denied, 513 U.S. 811 (1994).
Normally, the court determines subject matter jurisdiction from the sufficiency of the allegations in the complaint. Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1981). If, however, a defendant makes a factual attack on subject matter jurisdiction — by providing affidavits, testimony, or other evidentiary materials challenging the jurisdiction of the court — then the plaintiff has the burden of proving jurisdiction by a preponderance of the evidence. Id.; Middle South Energy, Inc. v. City of New Orleans, 800 F.2d 488, 490 (5th Cir. 1986). In the instant motion, the Agral defendants have presented the court with a factual attack on ITL's complaint, pursuant to Rule 12(b)(1), because they have submitted affidavits and voluminous evidentiary materials in support of their motion.
B. The Standing Requirement
Lack of Article III standing is a defect in subject matter jurisdiction. See Bender v. Williamsport Area School District, 475 U.S. 534, 541-42 (1986); O'Shea v. Littleton, 414 U.S. 488, 493-95, 504 (1974). Therefore, when a plaintiff lacks standing to sue in federal court, it is appropriate for this court to dismiss the action, pursuant to Rule 12(b)(1), for want of subject matter jurisdiction. See Chair King, Inc. v. Houston Cellular Corporation, 131 F.3d 507, 509 (5th Cir. 1997); Bender, 475 U.S. at 541.
The Supreme Court has held that Article III standing, at its "irreducible constitutional minimum," requires that a plaintiff demonstrate: (1) "an injury in fact — an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent;" (2) "a causal connection between the injury and the conduct complained of — the injury has to be fairly . . . trace[able] to the challenged action of the defendant, and not . . . th[e] result [of] the independent action of some third party not before the court;" and (3) a substantial likelihood that the injury will be "redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations, quotation marks, and footnote omitted); see also Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 771 (2000); Public Citizen, Inc. v. Bomer, 274 F.3d 212, 217-18 (5th Cir. 2002). All three elements must exist to establish Article III standing. Vermont, 529 U.S. at 771. The party invoking federal jurisdiction bears the burden of establishing these elements. Lujan, 504 U.S. at 561.
In its order of October 22, 2002, this court dismissed ITL's claims for lack of subject matter jurisdiction because ITL lacked standing. See generally ITL I, 277 F. Supp.2d 670. According to this court's memorandum order, ITL's injury was not redressable because an order confirming the Award would not help ITL in light of the Mexican bankruptcy court's finding that the Award was validly assigned to GEN, and international comity applied to that finding. Id. at 678-81.
The Court of Appeals, in an opinion dated October 20, 2003, vacated the judgment of this court and remanded for further proceedings. See ITL II, 347 F.3d at 596. The Court found that "the Agral Companies did not meet their burden of proof on the defense of comity, because they did not demonstrate that ITL (or its representative) was afforded notice and an opportunity to be heard" during the Mexican bankruptcy proceeding. Id. Consequently, the Court concluded, this court abused its discretion in applying comity to a decision of the Mexican bankruptcy court. Id.
The defense of comity is no longer before this court, contrary to the assertions of the Agral defendants. See Defendants' Reply to Plaintiff's Supplemental Brief in Response to Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction ("Supplemental Reply") at 2-4.
The court has not yet reached two potentially dispositive arguments concerning ITL's standing to bring this case: (1) whether the relief ITL seeks, an order confirming and enforcing the Award, will redress its injuries if the Award was validly assigned; and (2) whether there is a causal connection between ITL's injuries and the conduct of the Agral defendants. As discussed below, the court finds that ITL has failed to establish both elements of Article III standing.
The Court of Appeals directed that these arguments should be considered on remand:
The district court did not reach the alternative arguments of the parties and did not rule on whether the assignments were valid or on the Agral Companies' causation challenge to ITL's standing. The district court should consider these arguments including any factual issues necessary to resolve them in the first instance.ITL II, 347 F.3d at 596.
ITL seeks relief under the Federal Arbitration Act, 9 U.S.C. § 9 ("FAA"). Section 9 states that only a "party to the arbitration" may seek "an order confirming the award." Id. Specifically, the FAA provides, in pertinent part:
If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award. . . .9 U.S.C. § 9 (emphasis added). A "party" is generally defined as "one who takes part in a transaction," see BLACK'S LAW DICTIONARY 1144 (7th ed. 1999), or, in an FAA case, one who takes part in the arbitration.
In this case, ITL was not a party to the arbitration. The arbitration provision in the Note applied only to the note holder, Sharp, and to the debtors, the Agral defendants. Promissory Note ¶ 17. When Embotelladora defaulted on the Note, ITL permitted — and likely directed — Sharp to initiate and prosecute the arbitration proceedings in Sharp's own name. See Complaint ¶¶ 10-11. In fact, on three separate occasions the Agral defendants attempted to join the "Unknown Investor," later discovered to be ITL, as a party to the arbitration. See Reply Brief in Support of Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction ("Reply") at 15. However, pursuant to either the explicit instructions — or the lack of diligence — of ITL, Sharp claimed that it was the note holder and had independent standing to sue and be sued on the Note. Persuaded by Sharp's arguments, both the arbitrator and the trial court declined to require the joinder of ITL in the arbitration proceedings.
(1) Respondents' Motion to Join Additional Parties at 5 (contending that "absent parties who actually manipulate the negotiation surrounding [the Note], . . . should logically be included" in the arbitration proceeding), attached to Appendix to Reply as Exhibit 4; (2) Respondents' Supplemental Motion for Additional Depositions, to Join Additional Parties, and for Expanded Discovery (seeking to "join and depose" the "Unknown Investor"), attached to Appendix to Reply as Exhibit 5; and (3) Complaint to Compel Joinder of Additional Parties to Arbitration and Motion for Stay of Arbitration; or in the Alternative, Original Complaint for Usury at 2 (seeking to "join additional parties to the arbitration proceeding because absent parties are inextricably involved in the events giving rise" to the dispute), attached to Appendix to Reply as Exhibit 6. See also Second Declaration of Molly Steele ¶ 5, attached to Appendix to Motion as Exhibit 6.
Sharp Capital's Response to Motion to Join Additional Parties at 1 ("Sharp, as the note holder, is entitled to maintain this action in its own name alone and to enforce payment of the note[.]"), attached to Appendix to Reply as Exhibit 7. See also Second Declaration of Molly Steele ¶ 5, attached to Appendix to Motion as Exhibit 6.
The arbitrator refused to join the "Unknown Investor" because it was "neither [a] signator[y] nor [a] part[y] to the arbitration agreement." JAMS Memorandum and Order at 6, attached to Appendix to Reply as Exhibit 8.
The trial court refused to join "additional parties to an arbitration agreement contained in a promissory note that was executed between Embotelladora and NationsBank and subsequently endorsed to Sharp." Memorandum Opinion and Order at 9, Embotelladora Agral Regimontana S.A. de C.V. v. Sharp Capital, Inc., No. 3:96-CV-2862-BC (filed Nov. 8, 1996), attached to Appendix to Reply as Exhibit 9.
Although ITL clearly was not a party to the arbitration, the court must next determine whether ITL received the Award by assignment. Nothing in the FAA prohibits a party to the arbitration from assigning an award. The award itself is a transferrable property interest. See, e.g., Kentucky River Mills v. Jackson, 206 F.2d 111, 117, 120 (6th Cir.) (upholding the assignment of an arbitration award under New York law), cert. denied, 346 U.S. 887 (1953). Thus, the assignment of an arbitration award carries with it a cause of action for confirmation, together with all of the assignor's beneficial interest in the award. Absent status as a party to — or an assignee of — an arbitration award, however, a plaintiff necessarily lacks standing to bring a confirmation suit under the FAA. See 9 U.S.C. § 9.
The validity of an assignment is governed by state law. GEN argues that Mexican law applies. Reply at 14. ITL argues that Texas law applies Supplemental Brief in Response to Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction ("Supplemental Response") at 5 n. 16. The court applies Texas law, not as a resolution to this choice of law issue, but to give ITL the benefit of the doubt. See Christofferson v. Halliburton Company, 617 F.2d 403, 406 (5th Cir. 1980).
An arbitration award fits the definition of a "chose in action," i.e., a "right to bring an action to recover a debt, money, or thing." BLACK'S LAW DICTIONARY 234 (7th ed. 1999). This is because an arbitration award carries with it a right to bring an action to confirm that award. Texas law permits assignments of all property rights, including choses in action. See Doty v. Caldwell, 38 S.W. 1025 (Tex.Civ.App. 1897, no writ). See also Citizens State Bank of Houston v. O'Leary, 167 S.W.2d 719, 721 (Tex. 1942); PPG Industries, Inc. v. JMB/Houston Centers Partners Limited Partnership, 41 S.W.3d 270, 276 (Tex.App. — Houston [14th Dist.] 2001); American Indemnity Company v. Baumgart, 840 S.W.2d 634, 637-38 (Tex.App.-Corpus Christi 1992, no writ). An assignment of a chose in action — including an arbitration award — operates as valid transfer of the title to the chose, and the assignee becomes the real party in interest, who may maintain the action in his or her own name. 6 AM. JUR. 2D ASSIGNMENTS § 51.
Moreover, under Texas statutory law, judgments and causes of action may be assigned. TEX. PROP. CODE ANN. § 12.014 (Vernon 2004). An arbitration award is akin to a court judgment. See Milliken v. Grigson, 986 F. Supp. 426, 431 (S.D. Tex. 1997) ("In Texas, an arbitration award has the same effect as the judgment of a court of last resort."), aff'd, 158 F.3d 583 (5th Cir. 1998) (table). Further, because an arbitration award may be enforced through an confirmation proceeding under the FAA, see 9 U.S.C. § 9, it is at least an "interest in a cause of action" for confirmation of that award. See Casray Oil Corporation v. Royal Indemnity Company, 165 S.W.2d 244, 248 (Tex.Civ.App. — Galveston 1942) (observing that the assignment of a judgment carries with it a cause of action on which judgment is based, together with all of assignor's beneficial interest in judgment and all its incidents) (citation omitted), aff'd, 169 S.W.2d 955 (Tex. 1943).
Once an award is assigned, the assignor is no longer a real party in interest. See, e.g., Hallman v. Safeway Stores, Inc., 368 F.2d 400, 403 (5th Cir. 1966) ("It is established Texas law that . . . unless the assignor has retained some interest [in the assignment], the assignor is precluded from bringing suit."); Southern County Mutual Insurance Company v. Ochoa, 19 S.W.3d 452, 465 (Tex.App.-Corpus Christi 2000, no pet.) (holding that once "a cause of action is assigned or transferred, the assignee becomes the real party in interest with the authority to prosecute the suit to judgment").
Significantly, ITL's and GEN's claims to the Award are mutually exclusive. It is well settled that a person cannot receive any greater rights by an assignment than the assignor possessed. See Crossman v. Fontainebleau Hotel Corporation, 273 F.2d 720, 725 (5th Cir. 1959). If Sharp owned the full rights and interest in the Award, then the assignments to Cañamar and GEN from Sharp are valid, and the conscripted assignment from Sharp's Special Master to ITL is invalid. See Motion at 6. If, on the other hand, Sharp did not own the Award, and Sharp's Special Master did, then ITL is an assignee of the Award with standing to maintain this confirmation action. See Response at 8; Supplemental Response at 5-6. The court must resolve this disputed fact issue to determine whether it has subject matter jurisdiction.
In ruling on a motion to dismiss under Rule 12(b)(1), the court may rely on: "1) the complaint alone; 2) the complaint supplemented by undisputed facts; or 3) the complaint supplemented by undisputed facts and the court's resolution of disputed facts." MCG, Inc. v. Great Western Energy Corp., 896 F.2d 170, 176 (5th Cir. 1990) (citing Williamson, 645 F.2d at 413).
The court, having reviewed the pertinent parts of the record, finds that Sharp was the sole owner of the Award and had full power to assign it. At the conclusion of the arbitration proceeding, Sharp received the Award in its own name. The Award specifically names "Sharp Capital, Inc.," not as custodian, trustee, or in any other representative capacity, but as the Award's exclusive recipient. See JAMS Award, located in Appendix to Motion at 17; see also ITL II, 347 F.3d at 591 ("[T]he Award was granted to Sharp, with no indication that Sharp received the Award as `custodian', `agent', or any other capacity, other than principal."). The arbitrator conferred no interest in the Award to ITL. Therefore, regardless of any relationship between Sharp and ITL, as to third-parties Sharp was the principal owner of the Award and had full power and authority to transfer it.
The underlying promissory note was merged into the Award.
The assignment from Sharp to Cañamar was valid. Sharp sold the Award to Cañamar for an account of Bridgestone, Inc. and payment of Sharp's legal fees. See Sharp-Cañamar Assignment at 6-8; Motion at 5. This assignment was memorialized in writing and notarized by both parties to the assignment, see Reply at 12-14, showing the intent of Sharp's president, Gutierrez, to transfer the Award to Cañamar. See Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc., 938 S.W.2d 102, 113 (Tex.App.-Houston [14th Dist.] 1996, no writ) ("[An assignment] is a manifestation by the owner of a right or property of his intention to transfer such right or property to another."). Because Sharp owned the rights and interest in the Award and validly assigned the Award to Cañamar, ITL received no right or interest in the Award when the Special Master later assigned it to ITL.
The court notes that, as president of Sharp, Gutierrez had apparent authority to assign the Award to Cañamar. Sharp's appointment of Gutierrez as its president clothed him with the apparent authority to do those things ordinarily entrusted to that office. Rourke v. Garza, 530 S.W.2d 794, 803-04 (Tex. 1975).
The court therefore concludes that there is no case or controversy before it to be adjudicated because ITL lacks standing to pursue the relief sought against the Agral defendants. As discussed above, a failure to establish any of the three elements of Article III standing is fatal to a plaintiff's ability to obtain relief in federal court. See Vermont, 529 U.S. at 771; Lujan, 504 U.S. at 561 (the elements of Article III standing "are not mere pleading requirements but rather an indispensable part of the plaintiff's case"); Doe v. School Board of Ouachita Parish, 274 F.3d 289, 292 (5th Cir. 2001). In this case, ITL has failed to carry its burden of proving, see pages 6-8 above, the redressability and the causational elements of Article III standing. First, a judgment confirming the award will not redress ITL's alleged injury because ITL has no right or interest in the Award. Second, there is no causal connection between any alleged conduct of the Agral defendants and ITL's alleged injury. Sharp's independent actions are the cause of ITL's injury and, thus, ITL's real claim is against Sharp for the proceeds of the Award. Because ITL has not satisfied its burden of proof to survive the defendants' factual attack on its complaint, the court must dismiss ITL's complaint for lack of subject matter jurisdiction.