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CBF Industria De Gusa v. AMCI Holdings, Inc.

United States Court of Appeals, Second Circuit

January 18, 2017

CBF INDUSTRIA DE GUSA S/A, DA TERRA SIDERÚRGICA LTDA, FERGUMAR-FERRO GUSA DO MARANHÃO LTDA, FERGUMINAS SIDERÚRGICA LTDA, GUSA NORDESTE S/A, SIDEPAR-SIDERÚRGICA DO PARÁ S/A, SIDERÚRGICA UNIÃO S/A, Plaintiffs-Appellants,
v.
AMCI HOLDINGS, INC., AMERICAN METALS & COAL INTERNATIONAL, INC., K-M INVESTMENT CORPORATION, PRIME CARBON GMBH, PRIMETRADE, INC., HANS MENDE, FRITZ KUNDRUN, Defendants-Appellees. [1]

          Argued: March 2, 2016

          Final Briefs Submitted: October 5, 2016

         Appeals from two judgments of the United States District Court for the Southern District of New York (Sweet, J.) dismissing both the initial action to enforce and the subsequent action to confirm a foreign arbitral award brought by plaintiffs-appellants CBF Indústria de Gusa S/A, Da Terra Siderúrgica LTDA, Fergumar- Ferro Gusa do Maranhão LTDA, Ferguminas Siderúrgica LTDA, Gusa Nordeste S/A, Sidepar-Siderúrgica do Pará S/A, and Siderúrgica União S/A (collectively, "appellants" or "award-creditors") against defendants- appellees AMCI Holdings, Inc., American Metals & Coal International, Inc., K-M Investment Corporation, Prime Carbon GmbH, Primetrade, Inc., Hans Mende, and Fritz Kundrun (collectively, "appellees").

         Appellants brought suit in the United States District Court for the Southern District of New York to enforce a foreign arbitral award against appellees as alter-egos of the then-defunct award-debtor. The district court first dismissed appellants' cause of action to enforce the foreign arbitral award on the basis that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq., required appellants to seek confirmation of the award prior to enforcement. The district court also dismissed appellants' five causes of action for fraud on the basis of issue preclusion due to prior consideration of certain fraud issues by the arbitral panel. After appellants filed a second proceeding seeking to confirm the foreign arbitral award and filed an amended complaint in the enforcement proceeding, the district court dismissed the action to confirm on the basis that the award-debtor was immune from suit under Federal Rule of Civil Procedure 17(b) and then dismissed the amended action to enforce for failure to confirm the foreign arbitral award.

         In No. 15-1133, we hold that the district court both (1) erred in determining that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq., require appellants to seek confirmation of a foreign arbitral award before the award may be enforced by a United States District Court and (2) erred in holding that appellants' fraud claims should be dismissed prior to discovery on the ground of issue preclusion as issue preclusion is an equitable doctrine and appellants plausibly allege that appellees engaged in fraud. Accordingly, we vacate the district court's judgment dismissing the action to enforce and remand for further proceedings consistent with this opinion. In No. 15-1146, we hold that the appeal of the judgment dismissing the action to confirm is moot and accordingly dismiss that appeal.

         In No. 15-1133, Vacated and Remanded. In 15-1146, Dismissed as Moot.

          ADAM K. GRANT, Polsinelli PC (David L. Barrack, on the brief), New York, NY, for Plaintiffs-Appellants.

          KEVIN P. LUCAS, Buchanan Ingersoll & Rooney, PC (Bruce A. Americus, Alexandra P. West, Stuart P. Slotnick, on the brief), Pittsburg, PA, for Defendants- Appellees.

          Peter Aronoff, Benjamin H. Torrance, Assistant United States Attorneys, Of Counsel; Benjamin C. Mizer, Principal Deputy Assistant Attorney General; Sharon Swingle, Attorney, Appellate Staff, Civil Division, Department of Justice; Brian Egan, Legal Adviser, Department of State, for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, as amicus curiae in support of Plaintiffs- Appellants.

          Before: KEARSE, POOLER, and SACK, Circuit Judges.

          POOLER, Circuit Judge:

         Plaintiffs-Appellants CBF Indústria de Gusa S/A, Da Terra Siderúrgica LTDA, Fergumar- Ferro Gusa do Maranhão LTDA, Ferguminas Siderúrgica LTDA, Gusa Nordeste S/A, Sidepar-Siderúrgica do Pará S/A, and Siderúrgica União S/A (collectively, "appellants" or "award-creditors") appeal two judgments of the United States District Court for the Southern District of New York (Sweet, J.) dismissing both appellants' initial action to enforce and appellants' subsequent action to confirm a foreign arbitral award against defendants-appellees AMCI Holdings, Inc., American Metals & Coal International, Inc., K-M Investment Corporation, Prime Carbon GmbH, Primetrade, Inc., Hans Mende, and Fritz Kundrun (collectively, "appellees") as alter-egos of the award-debtor.

         Appellants brought suit in the United States District Court for the Southern District of New York to enforce a foreign arbitral award against appellees as alter-egos of the then-defunct award-debtor. The district court first dismissed appellants' cause of action to enforce the foreign arbitral award on the basis that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq., required appellants to seek confirmation of the foreign arbitral award prior to enforcement. The district court also dismissed appellants' five causes of action for fraud on the basis of issue preclusion[2] due to prior consideration of certain fraud issues by the arbitral panel. After appellants filed a second proceeding seeking to confirm the foreign arbitral award and filed an amended complaint in the enforcement proceeding, the district court dismissed the action to confirm on the basis that the award-debtor was immune from suit under Federal Rule of Civil Procedure 17(b) and then dismissed the amended action to enforce for failure to confirm the foreign arbitral award.

         We hold the district court erred (1) in determining that the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards and Chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201 et seq., require appellants to seek confirmation of a foreign arbitral award before the award may be enforced by a United States District Court and (2) in holding that appellants' fraud claims should be dismissed prior to discovery on the ground of issue preclusion as issue preclusion is an equitable doctrine and appellants plausibly allege that appellees engaged in fraud. Accordingly, in No. 15-1133, we vacate the district court's judgement dismissing the action to enforce and remand for further proceedings consistent with this opinion; in 15-1146, we find the appeal of the district court's order in the action to confirm is moot and dismiss the appeal.

         BACKGROUND

         I. The Parties

         Appellants are a group of foreign companies organized under the laws of, and with their offices located in, Brazil. They produce and supply "pig iron, " which is a type of "intermediate metal made by smelting iron ore with high- carbon fuel." App'x at 789 ¶ 27. Pig iron can then be further refined to become steel or wrought iron.

         Appellees are a group of interrelated companies (collectively, the "corporate appellees") and two individuals, Hans Mende and Fritz Kundrun (collectively, the "individual appellees"). According to appellants, the individual appellees financially control, directly or indirectly, the corporate appellees.

         II. Allegations in the Amended Complaint

         As this is an appeal taken from a decision on a motion to dismiss, the facts are largely drawn from the amended complaint and are accepted as true for the purposes of this appeal. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         Beginning in the mid-1990s, appellants sold pig iron to a Swiss company called Primetrade AG. Some portion of that pig iron was then supplied to Primetrade USA which, appellants allege, together with Primetrade AG, "operated as one company" at all relevant times. App'x at 790 ¶ 30.[3] On or about February 28, 2004, a bulk carrier transporting cargo for Primetrade AG exploded off the coast of Colombia, causing the death of the master and five crew members. In April 2005, Primetrade AG transferred its assets, including its agreements with appellants, to Steel Base Trade, AG ("SBT"), a Swiss company, which "began operating with the same officers and directors as Primetrade AG and at the same offices." App'x at 790 ¶ 32. The transfer to SBT was apparently due to the fact that Primetrade AG garnered negative publicity following litigation arising out of the ship explosion. [JA 41] Silvio Moreira, a representative of Primetrade AG in Brazil, informed two of the appellants that "the business would be the same, just under a different name." App'x at 790 ¶ 32.

         On or about October 5, 2007, AMCI International GmbH ("AMCI International"), a company owned and controlled by the individual appellees, purchased SBT and its U.S. subsidiary, Primetrade USA. In 2008, appellants and SBT entered into ten separate contracts for the sale and purchase of 103, 500 metric tons of pig iron to SBT for more than $76 million (the "Contracts"). Only appellants and SBT are signatories of the Contracts; none of the appellees are signatories. Appellants claim four of the ten Contracts provided for delivery of pig iron in the United States. The delivery dates were set from April 2008 through December 1, 2008.

         Each of the Contracts contained the following identical arbitration provision:

All disputes arising in connection with the present contract shall be finally settled under the rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris, by one or more arbiter, appointed in accordance with said rules.

App'x at 72, 78, 84, 90, 96, 102, 109, 116, 123, 130, 792. The Contracts did not provide that they were entered into on behalf of any other party or specify that they are binding on successors-in-interest or assigns.

         Initially, in accordance with the Contracts, SBT purchased 33, 056 metric tons of pig iron. Subsequently, however, SBT ceased purchasing pig iron from appellants as required by the Contracts and, by October 2008, SBT was in default of the Contracts. Indeed, in 2008, as the global economy declined, the so-called "commodities bubble" burst, causing many commodities to drop in price by more than a third. See, e.g., Clifford Krauss, Commodity Prices Tumble, N.Y. Times, Oct. 13, 2008, http://www.nytimes.com/2008/10/14/business/ economy/14commodities.html (stating that "[m]etals, like aluminum, copper, and nickel have declined by a third or more."). Soon thereafter, appellants contacted SBT regarding its non-compliance with the Contracts and, on November 20, 2008, SBT representative Dominic Sigrist responded via e-mail, stating:

You know our group and it is not our style to walk away from obligations. . . . We will need a long time to work this out together. My message to your group is: we are not walking away!!!

App'x at 792 ¶ 42. Appellants allege this was a false representation made in furtherance of Mende and Kundrun's fraudulent conveyance scheme, which involved selling SBT's assets to a separate entity-a shell company owned by Mende and Kundrun. Despite SBT's statement that it would not walk away from its obligations, appellants allege they learned through publicly available shipping records that SBT had been purchasing pig iron from other sources.

         On September 11, 2009, appellants sent a written notice to SBT stating amounts due from SBT under the Contracts and proposing negotiation prior to submitting the contract breach to arbitration before the International Chamber of Commerce, Paris (the "ICC Paris"). SBT allegedly asked for some time to evaluate the Contracts and respond to the offer to negotiate. Appellants allege, however, that this was simply a ruse to buy time to allow its alter-egos, appellees, to "engage in a scheme to leave SBT assetless and unable to pay its some of creditors, including [appellants]." App'x at 793 ¶ 45.

         III. Arbitration Proceedings, the Transfer Agreement, and SBT's Bankruptcy

         When SBT ultimately responded but failed to either provide a settlement proposal or provide an indication that it would perform the Contracts, appellants filed a request for arbitration in accordance with the arbitration clause of the Contracts with the ICC Paris on November 16, 2009. Soon thereafter, SBT requested an extension of time from the ICC Paris until February 15, 2010 to answer the request for arbitration. The ICC Paris granted an extension until January 27, 2010. During this period, appellants allege that SBT, at Mende and Kundrun's direction, formulated and enacted "their [fraudulent] scheme to transfer all of SBT's assets to a preexisting shell company owned by Mende and Kundrun" on December 23, 2009. App'x at 793 ¶ 48. For example, appellants learned through publicly available records that a Swiss entity named Prime Carbon GmbH ("Prime Carbon") had begun making significant purchases of pig iron. On January 15, 2010, appellants sent a letter to the ICC Paris suggesting that SBT appeared to be "transferring its business operations and assets to Prime Carbon[.]" App'x at 794 ¶ 50. Appellants had discovered that: (a) Prime Carbon had the same address as SBT's parent company AMCI International; (b) Mende was the President of the Board of Directors of Prime Carbon; (c) former directors of SBT had become directors of Prime Carbon; and (d) SBT's website was no longer available. Ten days later, SBT responded by stating:

         [SBT] does not try to evade from its obligations[.]

It is true that the website www.steelbasetrade.com was shut down at the beginning of January 2010[.] The reason is that [SBT] first has to analyze [its] position regarding pending or imminent claims for damages from purchasers as well as against suppliers as well as [its] financial situation[.] Therefore, [SBT] has at least temporarily suspended [its] business activities. Please note, however, [SBT] is still existing and has not resolved to be dissolved and liquidated.

App'x at 794 ¶ 51. According to appellants, this letter represents an additional intentional misrepresentation made by appellees to both appellants and the ICC Paris in order for the appellees to "buy time" while they "effectuate[d] their plan to make SBT an assetless and judgment proof company." Appellants' Br. at 10.

         Indeed, on December 27, 2009, around one month before SBT submitted its answer to appellants' Request for Arbitration and two weeks before SBT sent its letter to the ICC Paris stating it "ha[d] not resolved to be dissolved and liquidated[, ]" appellants allege SBT entered into a transfer agreement with Prime Carbon. See CBF Indústria de Gusa S/A/ v. AMCI Holdings, Inc., No. 13 Civ. 2581, 2015 WL 1190137, at *4 (S.D.N.Y. Mar. 16, 2015) (hereinafter "Enforcement Decision"). Under this transfer agreement, designated as a "single entity succession" by the terms of the agreement, Prime Carbon became SBT's successor in interest. SBT transferred nearly all of its assets, valued at approximately $126 million, along with liabilities of approximately $130 million to Prime Carbon in exchange for $1. App'x at 795-96 ¶¶ 58-59. The transferred assets included SBT's ownership stake in Primetrade USA (its main asset), shares of an Aruba LLC, insurance policies and physical assets, and bank lines. SBT's sole remaining asset after the transfer was a few thousand Swiss francs ("CHF"). SBT also retained approximately $50 million in liability to appellants and $4.5 million in liability to another creditor, Progress Rail. Appellants describe the transfer agreement as a "turn-key operation" so that Prime Carbon could "seamlessly assume SBT's place in the pig iron market without any contractual obligations to [a]ppellants." Appellants' Br. at 11 (internal quotation marks omitted).

         On January 18, 2010, SBT sent letters to a variety of its pig iron suppliers notifying them that

(i) as of November 30, 2009, SBT had transferred all Goods and the respective title of the Goods to Prime Carbon; (ii) Prime Carbon was the new and sole owner of the Goods; (iii) Prime Carbon assumes all rights with respect to the transferred Goods; and (iv) Prime Carbon is willing to enter in[to] all contracts between your company and [SBT] and to perform under the same conditions.

App'x at 794-95 ¶ 53 (internal quotation marks omitted). Further, the letters advised pig iron suppliers "to act from the time being only on [the] instruction of Prime Carbon." App'x at 795 ¶ 54. According to appellants, "SBT, at Mende's and Kundrun's direction, used the delay granted by the ICC Paris to effectuate their plan to transfer SBT's assets to a new company ultimately owned by them." Appellants' Br. at 12.

         Following the transfer agreement, Prime Carbon (a) had at least five of the same directors as SBT; (b) assumed ten of SBT's employment contracts; (c) appointed Mende to serve as the President of its Board of Directors; and (d) had, at all times, either the same address as SBT or the same address as AMCI International. The boards of SBT and Prime Carbon formally approved the transfer agreement on January 27, 2010, just two days after SBT had informed ICC Paris that SBT "does not try to evade from its obligations" and that SBT "is still existing and has not resolved to be dissolved and ...


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