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Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua, S.A.B. de C.V., No. 15-CV-02120 (D. Colo. Mar. 25, 2019) [click for opinion]

Respondents Grupo Cementos de Chihuahua, S.A.B. de C.V. and GCC Latinoamérica, S.A. de C.V. (together, “GCC”) are Mexican entities that supply cement, aggregates, concrete and construction services in Mexico and the U.S. In the early 2000s, GCC sought to expand its presence into South America and met with Compañía de Inversiones Mercantiles S.A. (“CIMSA”), then the controlling shareholder in Sociedad Boliviana de Cemento, S.A. (“SOBOCE”), the largest cement company in Bolivia, to discuss investing in SOBOCE.

GCC ultimately acquired a 47% stake in SOBOCE, executing a shareholder’s agreement with CIMSA in 2005. The shareholder’s agreement was governed by Bolivian law and contained a right of first refusal in the event a shareholder sought to divest its interest in SOBOCE to a third party. After GCC informed CIMSA that it intended to sell its shares, CIMSA exercised its right of first refusal. Shortly before the share transaction was scheduled to close, the Government of Bolivia expropriated a division of SOBOCE causing CIMSA to be unable to pay GCC for its shares. Despite continued negotiations and indications by GCC that a new deal had been reached with CIMSA, GCC sold its shares to a third party in August 2011. As a result, CIMSA initiated arbitration against GCC.

The parties agreed to bifurcate the arbitration proceedings into a merits phase and a damages phase. In September 2013, the tribunal issued a partial award on liability, finding in favor of CIMSA on the merits and then moved to the damages phase. In April 2015, the tribunal issued a final award on damages, awarding CIMSA about $36 million plus 6% interest.

Unhappy with the awards, GCC initiated annulment proceedings in Bolivia, setting off on a long trip through the Bolivian legal system. GCC first sought annulment of the partial award. When that request was denied, GCC filed an amparo action, “a distinct action to address official conduct that violates a party’s constitutional rights,” claiming that the judge had violated its rights by, inter alia, failing to explain the decision. This amparo was initially granted by a Guarantee Court, and remanded for further proceedings, where a different judge annulled the partial award. While CIMSA’s amparo against this decision was pending, the Plurinational Constitutional Tribunal (the “PCT”), the highest constitutional court in Bolivia, revoked the original Guarantee Court resolution. CIMSA, believing the first decision denying annulment to be controlling, withdrew its amparo against the subsequent annulment decision.

In parallel, court proceedings related to the damages award commenced in Bolivia. In July 2015, two months after the tribunal issued the damages award, GCC sought to have it annulled. A similar series of court proceedings followed. In these proceedings, the court initially annulled the damages award. An amparo by CIMSA followed, which was rejected by the Guarantee Court, but accepted by the PCT, which vacated the annulment order. While these proceedings were still pending (and likely to generate further amparos), CIMSA initiated this action in Colorado to confirm the arbitral award against GCC.

In reaching its decision, the district court analyzed the merits and damages awards separately, relying on the “exclusive grounds upon which courts may refuse to confirm an award” under Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“). While recognizing that courts should generally give deference to decisions of the competent authority in the arbitral seat, the district court can ignore this rule when a “foreign judgment setting aside the award is repugnant to fundamental notions of what is decent and just . . . or violated basic notions of justice.”

As to the merits award, the district court found compelling the testimony of CIMSA’s Bolivian law expert, who concluded that, because the Bolivian court decision annulling the merits award was overturned and the subsequent amparos resolved, the merits award was valid and enforceable. Further, the district court stated that GCC’s expert witness was “unconvincing” in his interpretation of Bolivian law. Thus, the district court found that pursuant to Article V(1)(e) of the New York Convention, the merits award had not been set aside by a competent authority in Bolivia.

As to the damages award, the district court acknowledged that the determination was more difficult, not least because GCC’s annulment proceeding was still pending in the Bolivian court. However, the district court analyzed GCC’s arguments against enforcement and found that they relied on application of Bolivian law, not the law of the place of enforcement. Although the agreement containing the arbitration clause was governed by Bolivian law and the annulment proceeding was pending in Bolivia, the relevant inquiry for the district court was whether under U.S. law—the New York Convention—the existence of ongoing judicial proceedings in Bolivia was a defense to enforcement. The court held that it was not, and recognized that the main goal of the New York Convention is to facilitate the enforcement of awards by enabling parties to enforce them in third countries without first having to obtain confirmation from the courts of the arbitral seat, i.e. abrogation of double exequatur.

GCC therefore argued in the alternative for stay of enforcement under Article VI of the New York Convention pending a decision in the Bolivian annulment proceeding. Under the Europcar framework (a court-made set of non-exclusive factors considered in determining whether a stay is warranted), the district court held that the factors weighed in favor of enforcement and against a stay.

The district court’s order therefore confirmed the arbitral award in favor of CIMSA for $36,139,223, plus 6% annual interest from April 10, 2015 to the date of the judgment, and post-judgment interest at the federal judgment rate. CIMSA was also awarded its costs.

A version of this post originally appeared in the May 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.

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