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IN THE MATTER OF MONEGASQUE DE REASSURANCES

September 4, 2001

IN THE MATTER OF THE ARBITRATION BETWEEN MONEGASQUE DE REASSURANCES S.A.M. (MONDE RE), PETITIONER AND NAK NAFTOGAZ OF UKRAINE AND STATE OF UKRAINE, RESPONDENTS.


The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

  DECISION AND AMENDED ORDER

Petitioner Monegasque de Reassurances s.a.m. (Monde Re) ("Monde Re") is a business organized under the laws of Monaco. As subrogree to the rights of AO Gazprom ("Gazprom"), a Russian company, Monde Re petitions for an order confirming a foreign arbitral award, citing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "Convention")*fn1 and claiming jurisdiction under the Foreign Sovereign Immunities Act (the "FSIA" or the "Act").*fn2

Respondent NAK Naftogaz of Ukraine ("Naftogaz") moves to dismiss the petition for lack of personal jurisdiction, contending that it is a Ukrainian company with no contacts with New York or the United States and that the underlying contract and all operative events giving rise to the arbitral award occurred in Ukraine and neighboring countries. Respondent State of Ukraine ("Ukraine") separately moves to dismiss the petition on the grounds that (1) the Court lacks both subject matter and personal jurisdiction because Ukraine is immune from suit under the FSIA; (2) the Court should decline jurisdiction pursuant to the doctrine of forum non conveniens; and (3) Monde Re has failed to state a claim upon which relief can be granted.*fn3 For the reasons stated below, Ukraine's motion is granted on the ground of forum non conveniens. Naftogaz's motion is thereby rendered moot, and the petition is dismissed as to both respondents.

FACTS

Except as otherwise noted, the Court finds the following facts to be undisputed for purposes of the pending motions herein.

In January 1998, Gazprom and AO Ukrgazprom ("Ukrgazprom"), a Ukrainian company, entered into a contract in Ukraine whereby Ukrgazprom agreed to transport natural gas across Ukraine through pipelines it operated and to deliver the gas to various foreign countries on behalf of Gazprom (the "Contract"). See Pet., ¶ 8. In exchange for Ukrgazprom's services, Gazprom promised to deliver approximately 235 million cubic meters of natural gas to Ukrgazprom. See id. In May 1998, Ukrgazprom and several other Ukrainian companies merged to form Naftogaz, which is the successor-in-interest to Ukrgazprom. See id., ¶ 14, 16. Naftogaz is a company organized under the laws of Ukraine with its principal place of business in Kiev, Ukraine. See id., ¶ 5.

In October 1998, Gazprom — to protect itself against the risk that Ukrgazprom might make an unauthorized withdrawal of natural gas in the course of the Contract — insured itself with the Sogaz Insurance Company ("Sogaz"), which reinsured the risk with Monde Re. See id., ¶ 9. In 1999, a dispute arose as to whether Ukrgazprom had, in fact, improperly withdrawn approximately 1.48 billion cubic meters of natural gas. See id., ¶ 11. Before the dispute had been resolved, Gazprom filed a claim with Sogaz. See id., ¶ 12. Sogaz paid the claim and was reimbursed by Monde Re, which, as a result, became subrogated to the rights of Gazprom under the Contract. See id., ¶¶ 12-13.

In accordance with an arbitration provision of the Contract, Monde Re and Naftogaz proceeded to arbitrate the dispute in the International Commercial Court of Arbitration in Moscow (the "ICCA"). See id., ¶¶ 19-20. That court directed Naftogaz to pay a total of $88,374,401.49 to Monde Re. See id., ¶ 21. Naftogaz's petition to annul the ICCA decision was refused.

Monde Re claims that Naftogaz has failed to pay any portion of the arbitral award and petitions this Court for an order confirming the award and directing entry of judgment in the full amount as against both Naftogaz and Ukraine. See id.; ¶ 22. Monde Re claims that Ukraine is (1) a major shareholder of Naftogaz; (2) a joint venturer with Naftogaz in several commercial enterprises; and (3) responsible under Ukrainian law for Naftogaz's obligations arising under the arbitral award. See id., ¶¶ 26, 29.

Naftogaz disputes that it is controlled by Ukraine. Ukraine acknowledges that Naftogaz is an "open joint stock company" created pursuant to a Resolution of the Cabinet of Ministers of Ukraine and governed by a Charter approved by the Cabinet of Ministers. See Respondent State of Ukraine's Memorandum of Law in Support, dated Jan. 22, 2001 ("Ukraine's Memo"), at 3. Ukraine maintains, however, that while the shares of Naftogaz are owned by Ukraine, Naftogaz is a separate legal entity responsible for its own contracts and liabilities. See id. Ukraine points out that it was neither a signatory to the Contract containing the arbitration clause, nor a party to the arbitration. See id.

DISCUSSION

A THE FSIA AND FORUM NON CONVENIENS

Before analyzing the case at bar under the doctrine of forum non conveniens, the Court feels that it is appropriate to address the application of this doctrine in a case arising out of the arbitration exception to foreign sovereign immunity. At first glance, a plausible argument might be made that the Convention as applied under the FSIA — requiring signatory countries to recognize and enforce foreign arbitral awards between private parties and sovereign states — might limit in some way the authority of a federal court to decline jurisdiction on the basis of forum non conveniens. Upon reasoned examination of the issue, however, this argument fails.

This Court finds nothing to suggest that the FSIA affects the federal judiciary's inherent power to decline jurisdiction over complex and inconvenient lawsuits brought in the United States which implicate foreign parties only; require the application of foreign law; and entail no contacts with the interests of the United States. To the contrary, application of the doctrine of forum non conveniens — when appropriate in such cases — may promote the notion of comity upon which the FSIA is grounded.

The FSIA confers both subject matter and personal jurisdiction over foreign sovereign states for certain actions arising out of the private and commercial activities of those states. See 28 U.S.C. § 1330, 1605. The doctrine of forum non conveniens separately affords federal courts the discretion to decline jurisdiction if the balance of the parties' private interests and the public interest concerns of the Court makes it clear that trying the case in the plaintiff's chosen forum would be inconvenient and unjust. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 507-09(1947); Piper Aircraft Co. v. Reyno, 454 U.S. 235(1981); Koster v. (American) Lumbermens Mut. Casualty Co., 330 U.S. 518, 527 (1947); DiRienzo v. Philip Servs. Corp., 232 F.3d 49 (2d Cir. 2000). In other words, both convenience and justice are best served when such an action would be tried in another forum where it could have appropriately been brought.

The power to decline jurisdiction under this doctrine is one that is inherent to the federal court. See Chambers, 501 U.S. at 44. As Justice Jackson wrote in Gilbert, 330 U.S. at 507, "[t]he principle of forum non conveniens is simply that a court may resist imposition upon its jurisdiction even when jurisdiction is authorized by the letter of a general venue statute." Thus, jurisdiction under the FSIA and the doctrine of forum non conveniens are wholly independent of each other, yet often entail intertwining considerations and may serve complementary policies and purposes. See Verlinden B.V. v. Central Bank of Nigeria, 461 U.S. 480, 490 n. 15(1983) ("The [FSIA] does not appear to affect the traditional doctrine of forum non conveniens."); Blanco v. Banco Industrial de Venezuela. S.A., 997 F.2d 974, 977 (2d Cir. 1993) (dismissing case arising under the FSIA on forum non conveniens grounds); Gould Inc. v. Kuhlmann, 853 F.2d 445, 454 (6th Cir. 1988) ("Forum non conveniens is not the same as jurisdiction and is a consideration independent of the FSIA."); Proyecfin de Venezuela, S.A. v. Banco Industrial de Venezuela, S.A., 760 F.2d 390, 394 (2d Cir. 1985).

The FSIA codified a restrictive theory of foreign sovereignty, placing the determination of sovereign immunity — and jurisdiction in United States courts in applicable cases — in the judiciary. See Verlinden, 461 U.S. at 489. The Act was designed to overcome claims of immunity and thereby confer jurisdiction over disputes involving foreign states and having some relation to the United States. See id. at 490; Vencedora Oceanica Navigacion, S.A. v. Compagnie Nationale Algerienne de Navigation (C.N.A.N.), 730 F.2d 195 (5th Cir. 1984).

At the time of the Act's promulgation in 1976, only the waiver exception to sovereign immunity set forth in § 1605(a)(1) did not require that a suit bear some connection to the United States. The Supreme Court in Verlinden, see 461 U.S. at 490 n. 15, noted that while the waiver provision may be seen as an exception to the normal application of the Act in this respect, the Court did not need to decide whether a foreign state, by waiving its immunity, could consent to suit based on activities wholly unrelated to the United States because the FSIA did not appear to affect the traditional doctrine of forum non conveniens. The Second Circuit reaffirmed this point, declaring:

We are not concerned that United States courts will become the courts of choice for local disputes between foreign plaintiffs and foreign sovereign defendants and thus be reduced to `international courts of claims'. The traditional doctrine of forum non conveniens is still ...

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