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Frontera Resources Azerbaijan Corp. v. State Oil Company of the Azerbaijan Republic

May 1, 2007

FRONTERA RESOURCES AZERBAIJAN CORPORATION, PETITIONER,
v.
STATE OIL COMPANY OF THE AZERBAIJAN REPUBLIC, RESPONDENT.



MEMORANDUM OPINION AND ORDER AMENDED TO INCLUDE PAGE 19

Petitioner Frontera Resources Azerbaijan Corporation ("Frontera") seeks enforcement of an award granted by a Swedish Arbitral Tribunal, pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 9 and 13. Respondent State Oil Company of the Azerbaijan Republic ("SOCAR") moves to dismiss the petition for lack of personal jurisdiction and on forum non conveniens grounds. In the alternative, SOCAR seeks to defer a decision pursuant to Article VI of the Convention on the Recognition and Enforcement of Arbitral Awards ("New York Convention"), implemented by 9 U.S.C. § 201 et seq., until the annulment proceeding pending before the Svea Court of Appeals in Sweden is resolved. For reasons detailed more fully below, SOCAR's motion to dismiss is granted.

BACKGROUND

Frontera is an oil exploitation company based in the Cayman Islands. SOCAR is an oil company owned by the government of the Republic of Azerbaijan. In November 1998, Frontera and SOCAR and two other parties entered into a financing and revenue sharing agreement ("Agreement") pursuant to which Frontera was to explore, develop, rehabilitate, and manage certain oil deposits in Azerbaijan. The European Bank for Reconstruction and Development ("Bank") provided financing to Frontera for the project. In 2000, a dispute arose between Frontera and SOCAR regarding SOCAR's obligation to pay for oil delivered to it by Frontera. Frontera claims that as a result of SOCAR's nonpayment it sought to sell the oil to purchasers located outside Azerbaijan. In mid-November 2000, SOCAR instructed Azerbaijani customs authorities to stop Frontera's export of oil, which they did; SOCAR then seized the oil.

In March 2002, the Bank foreclosed on Frontera's loan and forced Frontera to assign to the Bank its rights in the project, although Frontera continued to seek payment from SOCAR for the oil previously delivered by Frontera and the oil seized by SOCAR. SOCAR denied liability, arguing that Frontera had assigned all of its rights under the agreement to the Bank, and that the Bank had settled its claims with SOCAR on July 4, 2002. When further attempts to resolve the dispute proved unsuccessful, Frontera served notice of the dispute on SOCAR as specified in the Agreement. When no resolution had been reached after the agreed-upon thirty days had elapsed, on July 10, 2003, Frontera served a request for arbitration on SOCAR. The arbitration was commenced and tried in Stockholm, Sweden. SOCAR participated in all aspects of the arbitration and asserted a counterclaim. Following a full hearing on the merits, the Arbitral Tribunal issued its final award on January 16, 2006. In the Award, the Arbitration Tribunal ordered SOCAR to pay Frontera $1,240,784 for the seized oil, plus interest, and ordered Frontera to compensate SOCAR for its costs of arbitration in the amount of $170,400. On February 14, 2006, Frontera filed a petition for confirmation of the award in this Court.

DISCUSSION

SOCAR argues that the Court does not have personal jurisdiction over it, and that, in any event, the Court should dismiss the case under the doctrine of forum non conveniens. On the merits, SOCAR argues that the Court should refuse to enforce the arbitration award because Frontera assigned all of its claims under the Agreement to the Bank, who settled with SOCAR.

1. Motion to Dismiss

"It is a plaintiff's burden to establish the propriety of a court's exercise of personal jurisdiction over parties to the suit." Smit v. Isiklar Holding A.S., 354 F. Supp. 2d 260, 263--64 (S.D.N.Y. 2005). Before discovery, a plaintiff may defeat a motion to dismiss for lack of personal jurisdiction by pleading a prima facie showing of personal jurisdiction over defendants. Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir. 1998); Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194, 197 (2d Cir. 1990). At this stage, all pleadings and affidavits are construed in plaintiff's favor. PDK Labs v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997); CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). Where the pleadings indicate that limited discovery is likely to uncover additional facts supporting jurisdiction, a court may order discovery targeted at the missing jurisdictional elements. Turbana Corp. v. M/V "Summer Meadows", No. 03 Civ. 2099 (HB), 2003 U.S. Dist. LEXIS 21583, 2003 WL 22852742, at *1 (S.D.N.Y. Dec. 2, 2003).

2. Statutory Personal Jurisdiction

Under the Foreign Sovereign Immunities Act ("FSIA"), both statutory subject matter jurisdiction and personal jurisdiction turn on application of the substantive provisions of the Act. See Verlinden B.V. v. Cent. Bank of Nig., 461 U.S. 480, 485 (1983). Under 28 U.S.C. § 1330(a), a district court has subject matter jurisdiction if a foreign state is "not entitled to immunity either under sections 1605--1607 . . . or under any applicable international agreement"; under § 1330(b), a district court has personal jurisdiction wherever subject matter jurisdiction exists under subsection (a) and service of process has been made under 28 U.S.C. § 1608. Therefore, the FSIA "makes the statutory aspect of personal jurisdiction simple: subject matter jurisdiction plus service of process equals personal jurisdiction." Texas Trading & Milling Corp. v. Federal Republic of Nigeria, 647 F.2d 300, 308 (2d Cir. 1981), cert. denied, 454 U.S. 1148 (1982).

The Court concludes that SOCAR is not entitled to sovereign immunity and therefore that this Court has subject matter jurisdiction over the enforcement action. The FSIA provides for subject matter jurisdiction over foreign states that have agreed to submit to arbitration their disputes with private parties where "the agreement or award is or may be governed by a treaty or other international agreement in force for the United States calling for the recognition and enforcement of arbitral awards." 28 U.S.C. § 1605(a)(6)(B); see Monegasque De Reassurances S.A.M. (monde Re) v. Nak Naftogaz of Ukr., 311 F.3d 488, 494 (2d Cir. 2002). Here, the Agreement between Frontera and SOCAR had a provision that any disputes would be submitted to arbitration, the New York Convention is a treaty within the meaning of § 1605(a)(6)(B), see Cargill Int'l, S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1018 (2d Cir. 1993), and Azerbaijan is a signatory to the New York Convention. Therefore, SOCAR, as an instrumentality or agency of the Azerbaijani Government, implicitly waived any sovereign immunity defense. See Seetransport Wiking Trader Schiffarhtsgesellschaft MBH & Co., Kommanditgesellschaft v. Navimpex Centrala Navala, 989 F.2d 572, 578-579 (2d Cir. 1993) (describing requirements for implicit waiver). Accordingly, this Court has subject matter jurisdiction of the enforcement action under 28 U.S.C. § 1330(a). In addition, because the parties do not dispute that Frontera properly effected service on SOCAR pursuant to 28 U.S.C. § 1608(a), the statutory requirements for personal jurisdiction under the FSIA are met. See U.S. Titan Inc. v. Guangzhou Zhen Hua Shipping Co., 16 F. Supp. 2d 326, 335 (S.D.N.Y. 1998).

3. Due Process

Although the statutory requirements for personal jurisdiction may have been satisfied, SOCAR contends that petitioner must also satisfy the constitutional due process requirement that non-residents defendants have "certain minimum contacts with [the jurisdiction] such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Int'l Shoe Co., 326 U.S. at 316 (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)).*fn1 The Second Circuit has noted, but not resolved the issue of whether the "minimum contacts" analysis applies in the context of a petition to enforce an arbitral award under the New York Convention. Dardana Ltd. v. A.O. Yuganskneftegaz, 317 F.3d 202, 206--07 (2d Cir. 2003). Other courts, however, have answered this question in the affirmative. See Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1121 (9th Cir. 2002) (holding that "the [New York] Convention does not eliminate the due process requirement that a federal court have jurisdiction over a defendant's person or property in a suit to confirm a previously issued [foreign] arbitration award."); Base Metal Trading v. Ojsc Novokuznetsky Aluminum Factory, 283 F.3d 208, 212 (4th Cir. 2002) ("[W]hile the [New York] Convention confers subject matter jurisdiction over actions brought pursuant to the Convention, it does not confer personal jurisdiction when it would not otherwise exist. In other words, a plaintiff still must demonstrate that personal jurisdiction is proper under the Constitution."); Base Metal Trading Ltd. v. OJSC "Novokuznetsky Aluminum Factory", 47 F. App'x. 73, 76 (3d Cir. 2002) (following the Fourth Circuit's Base Metal decision); American Constr. Mach. & Equip. Corp. v. Mechanised Constr. of Pakistan Ltd., No. 85 Civ. 3765 (JFK), 1986 U.S. Dist. LEXIS 28551, 1986 WL 2973, at *6 (S.D.N.Y. Mar. 5, 1986)(confirming arbitration award against wholly-owned corporation of Pakistani government where corporation "had a continuous and systematic presence in this district, and could have foreseen that it might be sued in this district"); Transatlantic Bulk Shipping Ltd., v. Saudi Chartering S.A., 622 F. Supp. 25, 27 (S.D.N.Y. 1985) ("Some basis must be shown, whether arising from the respondent's residence, his conduct, his consent, the location of his property or otherwise, to justify his being subject to the court's ...


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