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Orinoco v. New Brunswick Power Holding Corp.

February 13, 2007

BITÚMENES ORINOCO, S.A., PETITIONER/CROSS-RESPONDENT,
v.
NEW BRUNSWICK POWER HOLDING CORPORATION, RESPONDENT/CROSS-PETITIONER.



The opinion of the court was delivered by: Loretta A. Preska, U.S.D.J.

OPINION AND ORDER

This dispute arises out of the alleged breach by Petitioner/Cross-Respondent Bitúmenes Orinoco, S.A. ("BITOR"), a Venezuelan fuel supply company, of an alleged 20-year, multi-billion dollar, fuel supply agreement (the "FSA") with Respondent/Cross-Petitioner New Brunswick Power Holding Corporation ("NB Power"), a Canadian power company. NB Power seeks to compel arbitration of this dispute based on an arbitration clause within the alleged FSA. BITOR moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure on the basis that no contract (and no arbitration clause contained therein) was ever concluded. Specifically, BITOR contends that the parties intended to be bound to the alleged FSA only upon its future signing --- an event which never occurred. For the reasons set forth below, BITOR's motion is denied.

BACKGROUND

A. The Parties

BITOR is a Venezuelan corporation organized under the Commercial Code of Venezuela with its principal place of business in Caracas, Venezuela. (NB Power 56.1 Stmt. ¶ 1).*fn1

BITOR is a wholly owned subsidiary of Petróleos de Venezuela, S.A. ("PDVSA") through which PDVSA conducts its Orimulsion(r)*fn2 fuel business. (Id. ¶ 2).*fn3

PDVSA is a Venezuelan corporation organized under the Commercial Code of Venezuela with its principal place of business in Caracas, Venezuela. (Id. ¶ 21). PDVSA is wholly owned by the Bolivarian Republic of Venezuela. (Id. ¶ 22). PDVSA supervises, controls, and develops Venezuela's fuel and energy industries, including the development and marketing of Orimulsion(r) fuel by BITOR. (Id. ¶ 23) (quotations and citations omitted). The Government of Venezuela regulates and supervises PDVSA's operations through the Ministry of Energy and Petroleum ("MEM") and the President of Venezuela*fn4 appoints the members of PDVSA's Board of Directors. (Id. ¶¶ 24-25 (quotations and citations omitted)).

Bitor America Corporation ("BAC") is a wholly owned subsidiary of BITOR. (Id. ¶ 3). BAC is a Delaware corporation with its principal place of business in Boca Raton, Florida. (Id. ¶ 12). BAC is BITOR's non-exclusive marketing representative and distributor of Orimulsion(r) fuel in the United States, Canada, and Puerto Rico. (Id. ¶ 13).

NB Power is a Canadian corporation organized under the Electric Power Act, R.S.N.B. 1973, C. E-5 and is wholly owned by the Government of New Brunswick, Canada. (Id. ¶ 27). NB Power generates, transmits, and distributes electricity in the Province of New Brunswick. (Id. ¶ 28).

B. Pre-Term Sheet Events

On December 18, 1990, NB Power and BAC signed a long- term Orimulsion(r) fuel supply agreement for NB Power's Dalhousie power plant. (Id. ¶ 31). Based in part on that transaction (see Cross-Pet. ¶¶ 39, 41), in or around July 1999, NB Power conducted engineering studies to determine the feasibility of converting its Coleson Cove power plant ("Coleson Cove") from a heavy fuel oil plant to an Orimulsion(r) fuel plant. (NB Power 56.1 Stmt. ¶ 35). At or about that time, PDVSA was supplying 50% of the heavy fuel oil for Coleson Cove. (Id. ¶¶ 37, 71).

Since the conversion would eliminate Coleson Cove's need for heavy fuel oil and cause PDVSA to lose revenue, in April 2000 NB Power sought "confirmation from PDVSA [BITOR] that Orimulsion(r) supply [would] be made available for the conversion of the Coleson Cove plant." (Id. ¶ 37 (citation omitted)).*fn5 In response, on April 27, 2000, BITOR stated on combined PDVSA and BITOR letterhead that "PDVSA [BITOR] confirms that if a mutually agreeable long-term Orimulsion(r) supply contract is executed by the end of the third quarter, 2000 then the supply . . . will be made available for Coleson Cove starting the second quarter of 2004." (BITOR Ex. B-7 at B013532 (Letter from Luis Pacheco, BITOR's then-Managing Director, to Stewart MacPherson, NB Power's former President and CEO)). BITOR further stated that "[i]f execution of the supply contract is delayed beyond the third quarter [of 2000], then [it] expect[s] [that] there would be a corresponding delay in supply from the second quarter, 2004." (Id.). Finally, BITOR stated that "Orimulsion(r) quantities contemplated for Coleson Cove would become subject to prior sale if contract execution is delayed." (Id.).

On February 7, 2001, BAC made a presentation to BITOR regarding a potential FSA between NB Power and BITOR for Coleson Cove. (NB Power 56.1 Stmt. ¶ 40). Based on that presentation, BITOR authorized BAC to proceed with the negotiation of a term sheet with NB Power. (Id. ¶¶ 40-42). After NB Power and BAC negotiated a term sheet, BAC scheduled a signing ceremony between NB Power and BITOR in Caracas, Venezuela for July 17, 2001. (Id. ¶ 43). On July 11, 2001, NB Power signed and faxed a copy of said term sheet to BAC. (Id. ¶ 44). BITOR did not sign that version of the term sheet. (Id. ¶¶ 47-49). Between July 14, 2001 and July 17, 2001, NB Power, BAC, and BITOR engaged in further negotiations over the term sheet. (Id.). On July 17, 2001, NB Power and BITOR signed a revised term sheet (the "Term Sheet"). (Id. ¶ 50).

The parties stated that the Term Sheet was "not legally binding." (MacPherson Aff., Ex. 3, § 17).*fn6 In addition, the parties stated that "[b]y executing this Term Sheet, [they] pledge to each other that they fully intend to pursue the conversion of the [Coleson Cove] Plant to Orimulsion and execution of the associated FSA, barring unforeseen circumstances." (Id.).

C. Post-Term Sheet and Pre-FSA Signing Ceremony Events

Following the execution of the Term Sheet, the parties undertook to convert Coleson Cove and execute an FSA. Certain exchanges and events in this time frame are particularly noteworthy to the issue of contract formation and are described in detail below.

From July 2001 to October 2002, NB Power sought and obtained the necessary regulatory approvals to convert Coleson Cove from a heavy fuel oil plant to an Orimulsion(r) fuel plant. (NB Power 56.1 Stmt. ¶¶ 61-77, 82-89; see also MacPherson Aff., Ex. 6 (Letter from Eduardo Hernandez, then a BAC Vice President, to Stewart MacPherson, NB Power's former President and CEO, dated Nov. 8, 2002: "On behalf of all of us at [BAC], please accept our congratulations . . . for having obtained the major permits required to convert Coleson Cove Generation Station to Orimulsion(r) fuel.")).

The New Brunswick Board of Commissioners of Public Utilities approved the conversion of Coleson Cove. (NB Power 56.1 Stmt. ¶ 75). In October 2002, after submission and review of NB Power's Environmental Impact Assessment, the applicable New Brunswick environmental regulators approved the conversion of Coleson Cove. (Id. ¶¶ 88-89). During this period, NB Power retained contractors and engineers, conducted studies, and began preliminary engineering work to convert Coleson Cove. (Id. ¶¶ 90-98). In November 2002, NB Power began the actual physical conversion of Coleson Cove. (Id. ¶¶ 99, 145).

From December 2001 to May 2003, the parties exchanged seven drafts of the alleged FSA. (Id. ¶¶ 121, 125, 134, 185, 194, 201, & 206). On November 8, 2002, at or about the time that NB Power commenced the actual physical conversion of Coleson Cove, BAC wrote to NB Power that "[BITOR], as a state owned corporation, is required by law to complete its internal approval process prior to making supply commitments." (MacPherson Aff., Ex. 6 (Letter from Eduardo Hernandez, then a BAC Vice President, to Stewart MacPherson, NB Power's former President and CEO)). BAC's letter went on to state that "higher levels within PVDSA have the final and binding decision" for supply to Coleson Cove. (Id.).

In response, on November 13, 2002, NB Power wrote to BITOR that it is "very concerned that the progress to get these approvals indicates . . . a lack of commitment to supply Orimulsion(r)" to Coleson Cove and stated that NB Power "need[s] to get a commitment from [BITOR] for the fuel supply by November 22nd, 2002." (MacPherson Aff., Ex. 7 at 1, 2 (Letter from Stewart MacPherson, NB Power's former President and CEO, to Mauricio Di Girolamo, BITOR's then-Managing Director)). NB Power also apprised BITOR that "[s]ubsequent to the [regulatory] approvals, NB Power released a number of major construction contracts for the Refurbishment Project" and that "[e]xcavation work commenced on the site earlier this month to meet an in-service date during the Fall of 2004." (Id. at 1).

As a result of this exchange, NB Power and BITOR participated in a conference call on November 18, 2002. (NB Power 56.1 Stmt. ¶ 160). On December 13, 2002, BITOR sent NB Power a follow-up letter to their call on combined PDVSA and BITOR letterhead stating that "[w]e would like to give our assurance that the long-term supply for Coleson Cove is a priority for [BITOR] that will be achieved. The only unknown at this time is the precise timing for supply startup." (MacPherson Aff., Ex. 8 (Letter from Mauricio Di Girolamo, BITOR's then-Managing Director, to Stewart MacPherson, NB Power's former President and CEO)).

Notwithstanding NB Power's understanding of BITOR's supply commitment, uncertainty arose yet again as a result of political turmoil in Venezuela. On December 2, 2002, a national labor strike began in Venezuela, and President Chávez declared a force majeure on Venezuelan oil products. (NB Power 56.1 Stmt. ¶ 110). The work stoppage crisis in Venezuela remained until March 10, 2003. (Id. ¶ 114).

As a result of the labor crisis, on March 6, 2003, officials from the Canadian Embassy to Venezuela met with representatives of BITOR and BAC to, among other things, "support NB Power in regard to their negotiations with PDVSA [BITOR] for a commitment to supply Orimulsion(r) for their Coleson Cove refurbishment project." (MacPherson Aff., Ex. 1 at 1; see also NB Power 56.1 Stmt. ¶ 170). To prepare the Canadian Embassy for that meeting, NB Power sent a "Briefing Note" of the "Coleson Cove Refurbishment Project" wherein NB Power stated that it "has yet to receive the required commitment from [BITOR] of the Orimulsion(r) Supply beginning in the Fall 2004." (BITOR Ex. A-102 at 0239035).

Based on a summary of that meeting provided by the Canadian Embassy, on March 17, 2003, NB Power wrote to BITOR stating that it understands "that the [FSA] will need to be approved by the PDVSA Board of Directors." (BITOR Ex. A-56 at 004164 (Letter from Stewart MacPherson, NB Power's former President and CEO, to Hercilio Rivas, BITOR's then-Managing Director)). In response, on March 21, 2003, BITOR confirmed its commitment on combined PDVSA and BITOR letterhead to "finalizing [the FSA] as soon as possible" and stated that "[o]nce discussions between NB Power and BITOR on the [FSA] are finalized, [BITOR] will present it to BITOR's Board and PDVSA['s] Board to get the final and definite approval." (NB Power Ex. 29 at B002685 (Letter from Hercilio Rivas, BITOR's then-Managing Director, to Stewart MacPherson, NB Power's former President and CEO)).*fn7

On April 3, 2003, NB Power and BAC met in Boca Raton, Florida in an attempt to finalize the terms and conditions of the alleged FSA. (NB Power 56.1 Stmt. ¶ 184). Following that meeting, the parties revised the trigger date of the "Term" of the alleged FSA. (Id. ¶ 185). The "Term" provision in the drafts of the alleged FSA had run from the "date of first Delivery" which was defined as "no sooner than three (3) years and no later than five (5) years from the date of signature of this Agreement unless otherwise agreed to by the Parties." (See, e.g., NB Power Ex. 16, § 2.1 at B020839). On April 7, 2003, the parties modified the "Term" provision in the alleged FSA to run from the "date of the first Delivery" which was to be a "mutually agreed upon Day during the period September-December 2004." (NB Power Ex. 17, § 2.1 at B021445).

On April 24, 2003, BITOR sought approval from PDVSA's Executive Committee for the alleged FSA. (See NB Power Ex. 7 at B021929 (Request from Alfredo Riera, BITOR's then-President, and Hercilio Rivas, BITOR's then-Managing Director, to include an item on the PDVSA Executive Committee agenda); see also NB Power Ex. 11 at B021930 (Letter from Hercilio Rivas, BITOR's then-Managing Director, to Dr. Alí Rodríguez Araque, PDVSA's then-President, dated July 18, 2003: "As part of the approvals process for contracts with terms of more than three years, in April 2003, the Executive Committee of PDVSA was given the conditions and terms of the supply contract to obtain its final approval and ask BITOR for final authorization to sign it.")). Specifically, BITOR's then-President and BITOR's then-Managing Director co-sponsored a formal application requesting "[a]pproval for BITOR to perform a supply agreement with [NB] Power." (NB Power Ex. 7 at B021929 (Request from Alredo Riera, BITOR's then-President, and Hercilio Rivas, BITOR's then-Managing Director, to include an item on the PDVSA Executive Committee agenda)).*fn8

The application attached an executive summary and presentation which, inter alia:

* summarized BITOR's relationship with NB Power (id. at B021930);

* noted that NB Power had obtained the necessary governmental and environmental approvals for the Coleson Cove conversion (id. at B021930, B021935);

* disclosed that the conversion of Coleson Cove was underway and represented an investment by NB Power of about $500 million (id. at B021930, B021933-35);

* noted the signing of the Term Sheet by NB Power and BITOR (id. at B021935);

* summarized the principal terms and conditions of the alleged FSA (id. at B021930, B021935, & B021937); and

* touted the benefits of the alleged FSA (id. at B021938-39).

That same day, at a meeting of PDVSA's Executive Committee, it was resolved that "the signing of the ORIMULSION(r) supply agreement for a period of twenty (20) years with [NB Power] was approved" and "the Managing Director of BITOR, Hercilio Rivas, was authorized to sign said agreement." (Id. at B021928). The next day, on April 25, 2003, PDVSA wrote to BITOR stating that the "Executive Committee approved the signing of a twenty (20) year supply contract for ORIMULSION(r) with the Canadian Company New Brunswick Power (NBP)" and that "[t]he Committee also authorized the General Manager of BITOR, Hercillo Rivas, to sign that contract." (NB Power Ex. 8 at B005972 (Letter from Favio González Ciavaldini, PDVSA's then-Secretary, to Alfredo Riera, BITOR's then-President)). Shortly thereafter, NB Power was notified that PDVSA approved the alleged FSA and that BITOR was ready and would proceed to sign the alleged FSA. (See NB Power Ex. 11 at B021930 (Letter from Hercilio Rivas, BITOR's then-Managing Director, to Dr. Alí Rodríguez Araque, PDVSA's then-President, dated July 18, 2003: "[O]nce the approval was obtained, [NB Power] was notified that [BITOR] was ready to sign the contract and would proceed to sign it."); see also NB Power Ex. 3 at 101/18--102/2 (Testimony of Dr. Hercilio Rivas, BITOR's then-Managing Director":

"Q: You expected Mr. Hernandez [then a BAC Vice President], based on your instruction, to inform [NB] Power that [BITOR] was prepared to sign the agreement?

A: That [BITOR] Managing Director had been authorized to sign the contract, the agreement.")).

Between April 24, 2003 and May 2, 2003, the parties continued to negotiate the choice of law, assignment, and release provisions in the alleged FSA. (NB Power 56.1 Stmt. ¶¶ 199-201). On May 2, 2003, BAC wrote to NB Power attaching a "final" draft of the alleged FSA:

Dave [Reid] --

As discussed, attached is the final draft with the changes made as discussed by phone.

Ron [Rostorfer] (NB Power Ex. 35 at B021361 (E-mail from Ron Rostorfer, then a BAC Vice President, to Dave Reid, NB Power's then-Director of Business Planning and Senior Advisor, Contract Development (the "May 2, 2003 E-mail"))). The draft of the alleged FSA attached to the May 2, 2003 E-mail resolved the remaining open issues of the choice of law, assignment, and release provisions. (NB Power 56.1 Stmt. ¶ 201).

On May 5, 2003, NB Power responded as follows: Ron [Rostorfer]: This draft looks OK to me with the following exceptions:

(1) the estoppel clause -- pending your lawyers review;

(2) change Section 32 notice fax number for NB Power should read 506-458-4319 (the 458-4000 is a computer fax number)

(3) Part B specifications Maximum Nitrogen should be 0.5 NOT 0.55 Have not heard back from Government. Will call you later this morning.

Dave [Reid] (NB Power Ex. 34 at 0238914 (E-mail from Dave Reid, NB Power's then-Director of Business Planning and Senior Advisor, Contract Development, to Ron Rostorfer, then a BAC Vice President (the "May 5, 2003 E-mail"))). The reference to "Government" in the May 5, 2003 E-mail is the Government of New Brunswick, which took an interest in the precise wording of the assignment clause and intimated that NB Power would be required to get its approval --- as opposed to just the approval of NB Power's Board of Directors --- if the language could not be agreed upon to its satisfaction. (NB Power 56.1 Stmt. ¶ 200; see also BITOR Ex. A-74 at 005975 (E-mail from William H. Teed, Q.C., then-Counsel for the Government of New Brunswick, to David Reid, NB Power's then-Director of Business Planning and Senior Advisor, Contract Development)). Ultimately, BITOR agreed to modified language in the assignment clause in the alleged FSA attached to the May 2, 2003 E-mail that was satisfactory to the Government later that day on May 5, 2003. (NB Power 56.1 Stmt. ¶ 202; see also BITOR Ex. A-75 at 005978 (E-mail from William H. Teed, Q.C., then-Counsel for the Government of New Brunswick, to David Reid, NB Power's then-Director of Business Planning and Senior Advisor, Contract Development)).

On May 6, 2003, NB Power's former President sought and obtained approval from NB Power's Board of Directors to enter into the alleged FSA. (NB Power 56.1 Stmt. ¶¶ 101-02, 203). NB Power communicated the occurrence of this event to BITOR via BAC. (NB Power Ex. 10, at B000548 (BAC Monthly Report, January-May 2003: "NB Power's Board of Directors approved the contract in a special meeting on May 6th."); see also NB Power Ex. 46 at B012814 (Notes of Ron Rostorfer, then a BAC Vice President, dated May 6, 2003: "Bd has approved K!")).

On May 6, 2003, BAC wrote to NB Power attaching the final draft of the alleged FSA and a draft press release:

Dave [Reid] --

As discussed, attached are the two subject documents.

We would like your approval regarding the Press Release so that it can be issued as stated on Thursday. It would be translated into Spanish for Venezuelan distribution. The version from BAC would go to the U.S. and trade press, but not to Canada unless you approve.

Confirming the travel details in Caracas, Eduardo [Hernandez] will meet your flight from Atlanta, Delta 907, arriving Caracas at 8:43 pm Wednesday.

You are all staying at the Eurobuilding Hotel.

The phone number there is 011-58-212-902-1111.

The fax number is 011-58-212-993-9285.

Hopefully, your corporate secretary will fax her signature page to you [no later than] Thursday morning at 8:30 am Eastern Time. The signing ceremony is tentatively set for about 10 am Thursday, followed by lunch. There will be a dinner in the evening. Eduardo will also handle your departure for the airport on Friday morning.

We expect you will take the signed copies of the contract home with you for follow-up signature by your corporate secretary. You could then express mail ...


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