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Stemcor Usa, Inc. v. Miracero, S.A. de C.V.

United States District Court, S.D. New York

September 30, 2014

STEMCOR USA, INC., Petitioner,
v.
MIRACERO, S.A. de C.V., Respondent

For Petitioner: Andrew N. Krinsky, Linda S. Roth, Christopher Tumulty, TARTER KRINSKY & DROGIN LLP.

For Respondent: David Lopez, Lance Hunter " Luke" Beshara, PULMAN, CAPPUCCIO, PULLEN, BENSON & JONES LLP.

Page 395

MEMORANDUM OPINION

Lewis A. Kaplan, United States District Judge.

Petitioner Stemcor USA, Inc. (" Stemcor" ) seeks to vacate an arbitration award obtained against it by respondent Miracero, S.A. de C.V. (" Miracero" ).[1] Miracero cross-moves to confirm the award.[2] It moves also for attorneys' fees.[3] As will appear, the award will be confirmed.

Facts

The Arbitration

Stemcor, a U.S. company, sold steel coils to Miracero, a Mexican steel importer and distributor. The dispute here concerns fallout from an ensuing contretemps with the Mexican tax authorities.

Miracero contracted in 2007 to purchase the steel coils, which Stemcor delivered to Miracero in Mexico as promised.[4] Miracero's steel imports were eligible for preferential tax treatment by the Mexican tax authorities under the North American Free Trade Agreement. However, Stemcor twice failed to respond to two letters from the Mexican tax authorities requesting that it verify the country of origin for steel sold to several of its customers, including Miracero.[5] In September 2011, the Mexican authorities suspended preferential treatment for several of Stemcor's customers, Miracero among them. They then assessed Miracero taxes, duties, and fees of $2.6million.[6] Miracero challenged the assessments in a series of Mexican legal proceedings, eventually spending nearly $340,000 to overturn them.[7]

The agreements between Stemcor and Miracero contain a clause providing for arbitration of " contract disputes" under

Page 396

the rules of the American Arbitration Association (" AAA" ).[8] In July 2012, Miracero commenced arbitration against Stemcor in New York to recover the costs of litigating the Mexican tax assessments on the theory that Stemcor's failure to verify the steel's country of origin breached duties owed to Miracero under the agreements and the Convention on the International Sale of Goods (" CISG" ). [9]

The principal dispute between the parties is whether the claim based on Stemcor's failure to verify the origin of the steel is a " contract dispute" within the meaning of the arbitration clause. On April 12, 2013, the arbitral panel held that it was and took jurisdiction over the dispute.[10] On January 16, 2014, after a four-day hearing, the panel awarded Miracero $819,437.86 for its attorneys' fees and costs in both the Mexican legal proceedings and the New York arbitration.[11] The arbitrators determined that Stemcor had been obliged to act " reasonably" in respect of its sales to Miracero and that it had breached that duty both by its " failure to act" in responding to the letters from the Mexican tax authorities and by failing to have " adequate training, policies and procedures in place that would have mitigated substantially or even obviated the actions that Miracero had to take in Mexico in 2012 and 2013 to overturn" the tax assessments.[12]

Prior Proceedings in this Court

On February 12, 2014, Stemcor moved to vacate the arbitration award. Stemcor argues that (i) the award is defective because Miracero's claims were not arbitrable, (ii) the award should be vacated as a matter comity and on the basis of judicial estoppel, essentially on the theory that the panel failed to consider adequately the outcome of the Mexican legal proceedings, and (iii) the arbitral panel acted ultra vires when it granted Miracero attorneys' fees and costs. Miracero cross-moved to confirm the arbitral award on May 30, 2014 and simultaneously moved for attorneys' fees as sanctions against Stemcor.

Magistrate Judge Ronald L. Ellis issued a report and recommendation on these motions on August 22, 2014.[13] Judge Ellis recommended rejection of all of Stemcor's arguments as to arbitrability and the propriety of the underlying award. He further recommended upholding the arbitral panel's award of fees and costs to Miracero and against an award of attorneys' fees for ...


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