Opinion
Civ. No. 99-2204, Section "A".
January 26, 2000.
ORDER AND REASONS
Before the Court are motions of defendants Briggs of Cancun ["Briggs"] and its parent, David Briggs Enterprises, Inc. ["Enterprises"]. Enterprises moves for dismissal of all claims against it. Briggs and Enterprises seek a stay or dismissal of the entire action.
Plaintiff Consorcio Rive ["Rive"], a Mexican corporation, filed this action pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ["Convention"]. 9 U.S.C. § 201, et seq. Rive seeks enforcement of a Mexican arbitral award in its favor against Briggs. Rive also alleges, under Louisiana law, that Enterprises and Briggs share an alter-ego or single business enterprise relationship such that the Court should pierce the corporate veil and hold Enterprises liable for the award.
T.I.A.S. No. 6957; 30 U.N.T.S. 38; and 3 U.S.T. 2517.
Facts and Mexican procedural history
Briggs leased land from Rive in Mexico in order to operate a restaurant. Enterprises was not a party to that lease. The lease agreement provided that any disputes between the parties would be arbitrated in Mexico under Mexican law. Disputes arose. Rive submitted the matter to arbitration and received an award of $2,760,000, plus interest and the costs of the arbitration.
Seeking to have that award set aside, Briggs filed an action ["nullity action"] in a Mexican court against the arbitration panel, asserting violations of Mexican procedural law. Rive is not a party to that action. The Mexican court sua sponte dismissed the nullity action; and Briggs has appealed that dismissal. The parties have shown that the appeal suspends the effect of the lower court's dismissal of the nullity action.
Motion to dismiss Enterprises
Rive alleges under Louisiana law that Enterprises may be liable to pay any judgment amount Briggs is unable to pay, because Briggs was under-capitalized and Briggs and Enterprises have a "single business enterprise" or "alter ego" relationship. Enterprises seeks dismissal of this state-law alter-ego claim under Fed.R.Civ.P. 12(b)(1). Enterprises was not a party to the lease agreement or to the arbitration proceedings, and it posits, therefore, that the Convention does not provide this Court with subject matter jurisdiction of any claim against it.
This Court has original federal question jurisdiction of this "action or proceeding falling under the Convention." 9 U.S.C. § 203. If an award falls under the Convention, "any party to the arbitration may apply to any court having jurisdiction . . . for an order confirming the award as against any other party to the arbitration." § 207. Therefore, the statutes related to the Convention afford jurisdiction only of the award and of Rive and Briggs, not Enterprises. That alone does not decide the issue of this Court's jurisdiction of the alter-ego claims against Enterprises. The possibility of supplemental jurisdiction must be considered.
In opposition to dismissal, Rive points out that under 9 U.S.C. § 205 a defendant may remove a related state court action to a federal court which is addressing an action under the Convention, and the removed action shall be deemed to have been brought in federal court. That is of no comfort to Rive. Like other removal statutes, § 205 confers on defendants, not plaintiffs, a right to choose a federal forum.
Pursuant to 28 U.S.C. § 1367(a):
In any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy. . . . Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
Enterprises contends that § 1367 cannot give the Court supplemental jurisdiction of the claim against it, because Enterprises is not before the court on the main claim. That argument would have had merit before the enactment of § 1367 in 1990. The final sentence of § 1367 quoted supra specifically provides that an entity may be brought before a court on the basis of supplemental jurisdiction even if that entity is not a party in the underlying matter, so long as the claims against it form a part of the same case or controversy.
In 1989, the Supreme court held in Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003 (1989), that there was a basis in law for federal court to exercise jurisdiction of "pendent claims," but there was no basis in law for jurisdiction of "pendent parties." The next year, § 1367 was enacted; and the final sentence of the statute, quoted supra, was specifically enacted in response to Finley to provide for supplemental jurisdiction of parties. See "Practice Commentary" following § 1367, West, 1993.
Since the enactment of § 1367, in Peacock v. Thomas, 516 U.S. 349, 116 S.Ct. 862 (1996), and in Central States, Southeast and Southwest Areas Pension Fund v. Art Pape Transfer, Inc., 79 F.3d 651 (CA7 1996), the Supreme Court and a Court of Appeals have addressed the issue of a district court's supplemental jurisdiction of an alter-ego claim which was allegedly related to an action before the court on federal question jurisdiction. In both those matters, plaintiffs' federal question ERISA actions were concluded in their favor; and the plaintiffs then brought second actions alleging that an alter-ego defendant could be liable for the amount due to plaintiff from the first action. In both, it was held that the court had no supplemental jurisdiction of the alter-ego claim in the second action. Discussions in the opinions are instructive.
Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.
In Peacock, 516 U.S. at 354-356, 116 S.Ct. at 867, the Court opined:
We have recognized that a federal court may exercise ancillary jurisdiction (1) to permit disposition by a single court of claims that are, in varying respects and degrees, factually interdependent; and (2) to enable a court to function successfully, that is, to manage its proceedings, vindicate its authority, and effectuate its decrees.
* * *
In a subsequent lawsuit involving claims with no independent basis for jurisdiction [in that lawsuit], a federal court lacks the threshold jurisdictional power that exists when ancillary claims are asserted in the same proceeding as the claims conferring federal jurisdiction. (Emphasis added.)
In Pension Fund, 79 F.3d at 653, it was observed regarding the second action;
Supplemental jurisdiction under 28 U.S.C. § 1367 might have supported decision had the state-law [alter-ego] theory been raised in the district court, but it was not. For the Pension Fund to get anywhere we would have to remand the case for adjudication of a state law claim not previously presented . . . that the district judge would proceed to address long after the claim based on federal law had vanished. That would not be a prudent use of the supplemental jurisdiction . . .
It follows from those opinions, and from § 1367, that if a district court has federal question jurisdiction of the main claim in an action, it has supplemental jurisdiction of a state-law alter-ego claim raised in the same action, if the alter-ego claim is "factually interdependent" with the main claim.
In the instant action, Rive's claim against Briggs regarding the arbitral award itself is properly before this Court on federal question jurisdiction. The alter-ego claim against Enterprises, the parent corporation of Briggs, is a part of the same case or controversy. The entire matter of whether the award should be confirmed; and, if so, which entity (or entities) is liable for it should be decided in one action. Pursuant to § 1367, this Court has supplemental jurisdiction of the alter-ego claim and of Enterprises; and the Court will exercise that jurisdiction and resolve that matter concurrently with the resolution of the main claim.
Defendant's correctly point out that Rive's complaint does not specifically assert § 1367 as a jurisdictional basis for the alter-ego complaint. Rive has plead the facts necessary for a state-law alter-ego claim against Enterprises; and the Court will permit Rive to amend its complaint to properly allege supplemental jurisdiction of that claim.
Motion to stay or dismiss this action
The Briggs defendants contend that this action should be stayed or dismissed because the arbitration award is not final under Mexican law. Pursuant to the Convention, the Court may refuse to enforce a foreign arbitral award if the award is not yet binding on the parties [Art. V(1)(e)], or if an action "for the setting aside or suspension of the award" has been instituted in the foreign country [Art. VI].
In opposition to dismissal or stay of this action, Rive contends that the arbitration award is final and enforceable because the Mexican appeal suspends the effect of the dismissal, not of the award itself. However, the effect of the dismissal of the nullity action has been suspended by the appeal, so that action "for the setting aside or suspension of the award" is unresolved.
In the only appellate court opinion discussing a stay of an action to enforce an arbitral award pending a foreign appeal of the award, it was observed:
[W]here a parallel proceeding is ongoing in the originating country and there is a possibility that the award will be set aside, a district court may be acting improvidently by enforcing the award prior to the completion of the foreign proceedings. . . .
The limited scope of review allowed under the Convention also favors deference to proceedings in the originating country that involve less deferential standards of review on the premise that, under these circumstances, a foreign court well-versed in its own law is better suited to determine the validity of the award.Europcar Italia, S.P.A. v. Maiellano Tours, Inc., 156 F.3d 310, R317 (CA2 1998).
That is the situation herein. The Mexican action to nullify the award involves issues of Mexican law, which the Mexican courts are better situated than this Court to resolve. This action should be stayed pending the outcome of the Mexican proceedings. However, to secure the stay they seek, defendants must post security to protect the interests of Rive.
Pursuant to Article VI of the Convention, in the event of a stay the Court may, on the application of the plaintiff, require defendants "to give suitable security." Rive has made such an application and seeks security in the sum of $3,207,000, the total of the award plus the interest thereon for one year. In opposition to this suggestion, the Briggs defendants contend that "it is clear that the Arbitration Award is not a binding judgment subject to enforcement under the laws of Mexico, therefore Rive is not being deprived of a vested right to warrant the requirement of security." That contention ignores the provision of Article VI, quoted supra.
Defendants seek a stay of this matter because of the proceedings in Mexico which they initiated. The Court will require that they give suitable security to protect the interests of Rive should the stay be granted. Defendants may post a bond or other equally satisfactory security in the sum of $2,760,000, the amount of the arbitral award at issue. A stay will be imposed herein on the posting of that security.
CONCLUSION
Pursuant to the foregoing discussion,
IT IS ORDERED that the motion of David Briggs Enterprises, Inc. for dismissal of all claims against it is DENIED; that the motion of Briggs of Cancun, Inc. and David Briggs Enterprises, Inc. for dismissal a stay of this action is GRANTED, on the condition that those defendants post a bond herein.
IT IS FURTHER ORDERED that plaintiff, Consorcio Rive, S.A. de C.V., may amend it complaint to properly assert federal supplemental jurisdiction no later than January 31, 2000.
IT IS FURTHER ORDERED that defendants, Briggs of Cancun and David Briggs Enterprises, Inc., shall deposit into the registry of the Court acceptable security in the sum of $2,760,000 no later than January 31, 2000; and on that deposit, without further order of the Court, this action be STAYED.
New Orleans, Louisiana, this 25th day of January, 2000.