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August 6, 2002


The opinion of the court was delivered by: Shira A. Scheindlin, United States District Judge.


This case presents a question of first impression: Is an interim order requiring a party to post prejudgment security, which was issued prior to an arbitral hearing, a reviewable "arbitral award" under the Inter-American Convention? Because I conclude that it is, the Orders must be reviewed under the deferential standard demanded by the Inter-American Convention and must be confirmed.*fn2


Banco is a Uruguayan corporation wholly owned by the Government of Uruguay. See Pet. Mem. at 5; MMO's Memorandum of Law in Opposition to Banco's Motion to Vacate an Arbitration Decision and in Support of MMO's Cross-Motion to Confirm That Decision ("Resp. Opp.") at 7. MMO is a corporation organized under the laws of New York. See Affidavit of Jorge W. Moreira, attorney for Banco, ¶ 5; Resp. Opp. at 7. Banco was a party to the Umbrella Agreement during various periods between June 1, 1978 and January 1, 1984, agreeing to be responsible for a percentage of MMO's net liability on certain of its policies. See MMO's Statement of Position, Ex. E to Declaration of Daniel Hargraves, attorney for MMO ("Hargraves Dec."), at 2; Banco's Statement of Material Facts Pursuant to Local Rule 56.1 ("Pet. 56.1") ¶ 3; Mutual Marine Office Umbrella Liability Quota Share Treaty, Ex. 2 to MMO's Statement of Position, ¶ 3; Mutual Marine Office Umbrella Liability Quota Share Treaty, Ex. 3 to MMO's Statement of Position, ¶ 3. MMO claims that Banco ceased making payments pursuant to the Umbrella Agreement in 1995. See MMO's Statement of Position at 2.

In February 2001, MMO commenced this arbitration.*fn3 See id. Pet. 56.1 ¶ 4; Resp. Opp. at 3. In its Demand for Arbitration, MMO sought an award: (1) ordering Banco to pay $100,650.04 together with interest thereon; (2) ordering Banco to post and maintain a Letter of Credit in the amount of $117,373.31; (3) declaring that Banco is liable for all claims submitted by MMO to Banco under the Umbrella Agreement; (4) declaring that Banco will continue to be liable for losses under the Umbrella Agreement; and (5) any additional damages and relief deemed appropriate, including costs and expenses. See Demand For Arbitration, Ex. A to Hargraves Dec., at 1-2. MMO also stated that it would apply to the Panel "at the earliest opportunity for an order requiring Banco to post appropriate security immediately pursuant to the provisions of the Umbrella Agreement, the Panel's equitable power and the relevant law." Id. at 2.

On September 4, 2001, the Panel ordered the parties to exchange "a brief statement of position" one week prior to the Organizational Meeting scheduled for November 5, 2001. Interoffice Memorandum via email From Dennis C. Gentry, Umpire of the Panel, to Daniel Hargraves and Jorge W. Moreira, Ex. B to Hargraves Dec., at 1. Counsel was asked to notify the Panel of any pre-hearing motions the parties wished to make. See id. Counsel also received an agenda for the Organizational Meeting listing "pre-hearing security" as one of the items for discussion at that Meeting. Organizational Meeting Checklist, Ex. B to Hargraves Dec. On December 20. 2001, MMO notified the Panel that it would make a pre-hearing motion seeking security. See 12/20/01 Email from Daniel Hargraves to the Panel, Ex. C to Hargraves Dec.

MMO served its Statement of Position on October 26, 2001, more than a week before the Organizational Meeting. See MMO's Statement of Position. MMO argued that the Panel should grant its request for security because: (1) such security was required under section 1213 of the New York Insurance Law; (2) such security was required by the Umbrella Agreement itself; (3) absent a provision in the arbitration agreement precluding such security, the arbitrators had the inherent power to order such relief; and (4) the security would guarantee the efficiency of the arbitration. See MMO's Statement of Position at 4-9. MMO provided the Panel with copies of all of the cases and statutes cited in its brief.

On October 29, 2001, the deadline for serving its Statement of Position, Banco received MMO's Statement of Position and informed the Panel that it would serve its Statement of Position two days later. See 10/29/01 Letter from Jorge W. Moreira to Daniel Hargraves and the Panel ("10/29/01 Ltr."), Ex. F to Hargraves Dec. On November 1, 2001, Banco submitted its Statement of Position and responded to the arguments made by MMO. See Statement of Position — El Banco de Seguro ("Banco's Statement of Position"), Ex G to Hargraves Dec. Banco argued that the Panel lacked the authority to order the requested security because, as an instrumentality of a foreign state, it was immune from posting pre-answer or prejudgment security under the Foreign Sovereign Immunities Act ("FSIA"). See id. at 5. It claimed that such immunity could only be waived by an explicit contractual provision, and that the Panel should withhold any determination with regard to MMO's claim for prejudgment security until the parties had an opportunity to engage in discovery and present their evidence at a hearing. See id. at 5-8. Like MMO, Banco provided the Panel with copies all of the cases and statutes cited in its brief.

At the November 5th Organizational Meeting, the Panel heard the parties' respective arguments regarding MMO's request that Banco be compelled to post a Letter of Credit ("LOC") to secure an eventual arbitral award. See Hargraves Dec. ¶ 7; Pet. 56.1 ¶ 10; Transcript of 11/5/01 Organizational Meeting ("11/5/01 Tr."), Ex. H to Hargraves Dec. At the end of the Organizational Meeting, the Panel ruled that it was authorized to order prejudgment security and instructed the parties to confer about the proper amount of that security. See 11/5/01 Tr. at 80. Specifically, the Panel stated:

Gentlemen, the panel does believe that it has the authority under the contract to require the posting of [Letters of Credit] or similar security in respect of amounts of dispute here. The problem we're faced with is because of the discrepancy in the first quarter 2001 accounts before us, we can't be certain what that amount is.

Id. The Panel then directed MMO to provide it with the documents reflecting the sums that MMO claimed were due, and scheduled a November 26, 2001 telephone conference to determine the amount of the LOC. See id. at 80, 83-84.

On November 21, 2001, MMO wrote to Banco and the Panel setting forth the explanation for the apparent "discrepancy" in the first quarter 2000 accounts. See 11/21/01 Letter from Daniel Hargraves to Jorge W. Moreira, Ex. I to Hargraves Dec. In an email dated November 23, 2001, the Umpire acknowledged receipt of MMO's letter and stated that, if Banco wished to respond, it must do so by fax by 4:00 p.m. that day. See email from Dennis C. Gentry to David A. Cobin, attorney for Banco, Daniel Hargraves, and the Panel, Ex. J to Hargraves Dec. It does not appear that Banco ever submitted a response.

During the November 26th telephone conference, which was not transcribed, the parties discussed their respective positions regarding the amount of security to be ordered. See Hargraves Dec. ¶ 10. Later that day, the Panel issued Interim Order #1, which directed Banco to post an LOC for $708,714.04, the amount sought by MMO. See id. ¶ 11; Pet. 56.1 ¶ 9; Interim Order #1, Ex. K to Hargraves Dec. That Order states, in pertinent part:

The panel has reviewed the recent correspondence from the parties concerning the request by [MMO] for security, has heard additional discussion in a telephone conference with counsel and has met telephonically to deliberate. The panel rules as follows:
1. Pursuant to the requirement of the subject reinsurance agreements, [Banco] is ordered to post a clean, irrevocable Letter of Credit in the amount of $708,714.04 by close of December 11, 2001 . . . .

Interim Order #1.

On December 11, 2001, the deadline for Banco to comply with Interim Order #1, Banco requested reconsideration of the Panel's decision. See 12/11/01 Letter from David A. Cobin to Daniel Hargraves and Panel, Ex. L to Hargraves Dec.; Notice of Motion for Reconsideration, Ex. L to Hargraves Dec.; Memorandum of Law ("Def. Recon. Mem."), Ex. L to Hargraves Dec. Banco argued that Interim Order #1 was "premature, unwarranted and outside of the scope of the arbitration clause governing this arbitration" because it was made prior to discovery and without any evidence as to whether the Umbrella Agreement required "the posting of LOC's," whether "MMO ...

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