Opinion
NO. 01-11-00073-CV
03-29-2012
PETROBRAS AMERICA, INC., PAI PRSI TRADING GENERAL LLC, AND PAI PRSI TRADING LIMITED LLC, Appellants v. ASTRA OIL TRADING NV, ASTRA GP, INC., ASTRA TRADECO. LP LLC, AND PASADENA REFINERY HOLDING PARTNERSHIP, Appellees
On Appeal from the 129th District Court
Harris County, Texas
Trial Court Case No. 2010-22326
MEMORANDUM OPINION
Appellants, Petrobras America, Inc., PAI PRSI Trading General LLC, and PAI PRSI Trading Limited LLC, appeal the trial court's judgment confirming a final arbitration award rendered against them in favor of appellees, Astra Oil Trading NV, Astra GP, Inc., and Astra TradeCo LP LLC. Identifying four issues, Appellants challenge certain provisions of the confirmation judgment. Appellants assert that the trial court erred in granting Appellees' motion to confirm the arbitration award and in denying their motion for partial vacatur of the award. In support of their contention that certain provisions of the arbitration award should be vacated, Appellants aver that the arbitration panel, which rendered the underlying final arbitration award, engaged in misconduct and exceeded its authority. Appellants also contend that Appellees procured a portion of the arbitration award by fraud.
We affirm.
Background Summary
In September 2006, a joint venture was started between Pasadena Refining System, Inc. ("PRSI"), a corporation that owns a refinery in Pasadena, Texas, and PRSI Trading Company LP ("the Trading Company"), an associated partnership, which supplied the refinery with feed stocks and crude oil. Petrobras America Inc. ("Petrobras America") and appellee, Astra Oil Trading NV ("Astra Oil") each owned one-half of the shares in PRSI. A Shareholders Agreement governed PRSI's operations.
Petrobras America's subsidiaries, PAI PRSI Trading General LLC and PAI PRSI Trading Limited LLC ("the Petrobras Partners"), owned one-half of the Trading Company. Astra Oil's subsidiaries, Astra GP, Inc. and Astra TradeCo LP LLC ("the Astra Partners") owned the other half interest. A Partnership Agreement between the co-owners governed the Trading Company's operations.
By 2008, substantial disagreements arose between the Petrobras entities (hereinafter, collectively referred to in the singular as "Petrobas") and the Astra entities (hereinafter, collectively referred to in the singular as "Astra") regarding the operation and management of PRSI and the Trading Company. On June 19, 2008, Petrobas invoked the arbitration provisions in the Shareholders Agreement and Partnership Agreement (collectively, "Agreements") by filing a demand for arbitration with the American Arbitration Association. Petrobras claimed that Astra had breached certain provisions of the Agreements and alleged that Astra had breached its fiduciary duties owed to the Trading Company.
The Shareholders Agreement and the Partnership Agreement gave Astra the right "to put" for sale to Petrobras the interests owned by Astra in PRSI and the Trading Company. The Agreements contained pricing formulas to calculate the amount that Petrobras would be required to pay for Astra's interests when Astra properly exercised its put rights.
Astra asserted its put rights under the Agreements, forcing a buyout of Astra's ownership interests and leaving Petrobras with complete ownership of PRSI and the Trading Company. The parties disagreed regarding whether Astra had validly exercised its put rights. They also disagreed regarding the proper valuation of Astra's interests in the joint venture. These disputes were added to the arbitration.
On October 24, 2008, the Arbitration Panel ("the Panel") issued an interim determination in which it concluded that Astra had properly exercised its put rights under the Agreements. The Panel stated that "[a]ll remaining issues in this arbitration shall be presented at [the] hearing" set to begin February 3, 2009. This would include a decision regarding when and how much Petrobras would be required to pay Astra for its interests.
After the interim decision, Petrobras amended its arbitration demand adding, inter alia, "[Astra] must . . . account for any trading activity conducted by traders seconded to the Trading Company that was not on behalf of the Trading Company." Astra answered and asserted a number of counterclaims.
At the time, Astra Oil and Petrobras America were guarantors of the Trading Company's $500 million line of credit extended by BNP Paribas. The Trading Company allowed the credit facility to expire without fully repaying BNP Paribas. As a result, on November 3, 2008, each of the guarantors on the line of credit— Astra Oil and Petrobras America—were required to make guarantee payments to BNP Paribas of approximately $156 million. To pay BNP Paribas, Astra Oil had funds transferred from the account of its Swiss subsidiary, AOT Holding Ltd, which maintains a joint New York bank account with its sister company, AOT Trading AG. Astra Oil directed AOT Holding to wire the funds directly to BNP Paribas's New York bank account. AOT Holding wired the funds from the joint account it held with AOT Trading AG to BNP Paribas's account.
The Partnership Agreement provides that the Petrobras Partners must provide indemnity for "all indebtedness of [the Trading Company] that Astra may have guaranteed." Because the Arbitration Panel's October 24, 2008 decision effectively assured Astra Oil that it would eventually recover the price of its put-option rights, Astra asserted a counterclaim seeking immediate reimbursement of the $156 million guarantee payment Astra Oil had made to BNP Paribas.
On November 14, 2008, the Arbitration Panel issued a scheduling order, which included a deadline for propounding and responding to requests for production of documents. Recognizing the expedited nature of the proceedings, the Panel did not permit interrogatories, depositions, or requests for admission as part of the discovery process. All requests for production of documents were to be propounded by November 26, 2008, with responsive documents to be produced by December 17, 2008.
The parties sent requests for production to one another. In response, Astra produced 60,000 pages of documents and Petrobras produced over 600,000 pages. Anticipating that Petrobras would soon have full ownership of PRSI and the Trading Company, Astra also gave 38 boxes of documents to Petrobras containing PRSI's and the Trading Company's tax, accounting, and trade records.
In an email to Astra's counsel on January 17, 2009, Petrobras's counsel identified a number of discovery items to be addressed before arbitration, including the following:
Trading records—[Petrobras and its subsidiaries] do not believe that [Astra] ha[s] produced trading documents and records for the trades made from September 1, 2006 through approximately July 2008. I told you there were about 20 trades in which Astra or its affiliates sold products to the Trading Company. You asked if I could send you a list of the relevant trades, and I did so earlier today. [Astra] ha[s] not produced documents related to the trades/acquisition by Astra and its affiliates of the products ultimately sold to the Trading Company. You agreed to look into this issue and give me a response by 10 am on January 19th.
Petrobras was seeking the trading documents to support its breach of fiduciary claim. Petrobras asserted that Astra had breached its fiduciary duty by means of loaning, or "seconding," its employees to the Trading Company. Petrobras alleged that these seconded employees engaged in improper trading activities that amounted to self-dealing by Astra. Specifically, Petrobras relied on the fact that, in a number of transactions, seconded Astra employees had purchased petroleum product for the Trading Company from Astra Oil, which had purchased the product from an outside source. Petrobras alleged that when it resold the petroleum to the Trading Company, Astra made a profit. Petrobras asserted that such transactions deprived the joint venture of profits that it would have realized had the Trading Company purchased the petroleum product directly from the outside source. Petrobras alleged that Astra's outside purchase and resale to the Trading Company of petroleum products usurped the joint venture's corporate opportunities and amounted to self-dealing. It averred that such conduct constituted a breach of the fiduciary duty that Astra owed the joint venture.
Petrobras had in its possession documentation regarding what the Trading Company had paid Astra for the petroleum products. But, as referenced in the above email, Petrobras sought Astra's trade documents, particularly the "deal sheets," showing how much Astra had paid the outside sources for the petroleum product it later resold to the Trading Company. Petrobras asserted that it needed the trade documents to support its claim that Astra had usurped an opportunity for the joint venture and had engaged in self-dealing, thereby breaching its fiduciary duty.
On January 19, 2009, Astra's counsel responded to Petrobras's email, in relevant part, as follows:
Discovery Issues: First, I would note that the Panel's order regarding discovery states that it shall be "reasonable in scope and burden, and consistent with the expedited nature of arbitration." We believe that a number of your original requests are inconsistent with
this directive, but we produced a significant amount of information nonetheless. The five additional issues you address below are, for the most part, beyond the scope of what is reasonable discovery in connection with this proceeding. In many instances, these items appear to be mere "fishing expeditions" that are distractions from the central issues in the case. Nonetheless, I indicated to you that we would work with you to produce as much of the information as was appropriate and possible under the circumstances. Your suggestion in this and other emails that we have intentionally withheld information is without basis.
. . . .
Trading Records: Our conversation on January 8, 2009 was the first time your client articulated a purported claim that Astra's traders at PRSI [Trading] had made trades from September 2006 to September 2008 that were for the sole benefit of Astra and harmed PRSI [Trading], allegedly in breach of Astra's duty to PRSI [Trading]. January 17 was the first time you identified the specific trades that you claim are at issue. I have spoken to my client and am told that producing the entire trading file for some of these trades would be enormously burdensome, as in some instances the paper trail is several inches to foot high. We can, however, agree to produce a summary of each trade that should give you the information you need regarding the Astra side of those trades, and we will do so this week.
On January 19, 2009, Petrobras filed a motion to compel, requesting, inter alia, the Panel to order Astra to "produce all relevant and responsive documents." The motion generally asserted that Astra had not produced documents responsive to Petrobras's requests for production and identified specific categories of documents. The motion averred that Petrobras's counsel had "expressed concern" to Astra's counsel "about the dearth of documents produced by [Astra] regarding trading/hedging activities." Petrobras did not specifically mention that it sought to compel the trade documents, or more specifically "the deal sheets," which indicate the price at which Astra had purchased the petroleum product later sold to the Trading Company. Petrobras also filed a motion for continuance requesting the Panel to postpone the February 3 arbitration hearing "for at least 90 days" to permit Petrobras to obtain and analyze the documents that it claimed Astra was wrongfully withholding.
Before the arbitration hearing, Astra and Petrobras submitted the witness statements of those witnesses who would testify at the Arbitration. Among those was the statement of Irek Kotula submitted by Astra. Kotula stated that he was a trader for Astra and had managed the trading activities for the Trading Company from September 2006 until March 2008. With respect to the trading activities, Kotula stated, in relevant part, as follows:
To protect the Trading Company, I enacted a very strict policy to be followed by all traders:The book to which each trade belongs had to be established in the moment of doing the deal, and written clearly on [the] deal sheet.
Any deal that involved a sale from Astra book [sic] to the Trading Company or vice versa had to be supported by independent market valuation, preferably from brokers, in writing supporting the price levels.
Additionally, in order to remove any possibility of doubt, we decided that in case of purchase by the Trading Company, we would discount the purchase price below market.In a case where the Trading Company was selling to Astra, we did it strictly at market level, and if the Trading Company was the only possible supplier, we recognized this by paying a premium to the market.In addition, in order to avoid misunderstandings, two Trading Company board members—Sergio Baron from Petrobras and Alberto Feilhaber from Astra—were copied on all deals done by the Trading Company. When they had any questions, the traders provided them with explanations. I remember only a limited number of deals about which questions were raised and, in each instance, the explanation was acceptable to Mr. Baron and/or Mr. Feilhaber. From the beginning, Petrobras had their own trader in the Trading Company, who was always involved in major decisions and was aware of all third-party trading Astra was doing, as well as deals involving trades between Astra and Trading Company. Prior to this arbitration, I have never heard a word of dissent or complaint at the operating trade level of the Trading Company regarding any of Astra's trades. This includes the present head of Trading Company's trading team, Fernando Assad, who works for Petrobras.
Most of these deals were documented, and the documents should all be in the Trading Company deal files at the Refinery. If traders took positions as Astra and then the Refinery later had a need for the product, then above rules applied.
Astra also submitted the witness statement of Alberto Felhaber, its Vice President for Latin America Trading. With respect to the trades involving seconded Astra employees, Feilhaber stated, in relevant part, as follows:
To the best of my knowledge, at no time during the period between September 2006 to September 2008, did any trader make a trade for Astra's sole benefit that could have been made for the benefit of PRSI.
The traders were given specific instructions regarding how trades were to be conducted. A copy of the trading policies developed and the board minutes are attached [hereto]. In addition, other rules were put in place to insure that any trade was communicated to the head of trading for Petrobras, Sergio Baron. In this way, we insured that all opportunities were provided first to PRSI. I am not aware of any instance in which Astra took advantage of a trade that PRSI could have done and wanted to do.
Petrobras submitted the statement of its employee, Fernando Assad, who had worked as a trader for the Trading Company since April 2007. Assad stated that he believed it was a conflict of interest for Astra to sell product to Trading Company. He also stated that Astra benefited from the sales. He gave examples of two types of transaction in which the Trading Company paid more for a product purchased from Astra than if it had purchased the product directly from the market. Assad averred as follows with regard to the trade documents Petrobras sought to obtain from Astra:
I believe that [Astra's] traders were making trades that benefited [Astra] at the expense of the Trading Company. This is one of the reasons that all of the trading records have been requested from [Astra]. These records will help show whether the trades made by [Astra] were appropriate and in the best interest of the Trading Company. [Astra] may have profited from trades that it should not have profited from, as the Trading Company could [have] made those trades directly.
. . . .
To determine the full impact and damage caused by [Astra's] traders and their conflicts of interest, I need to see additional information about the specific trades . . . . I need to see the documentation related
to [Astra's] purchase of the products at issue, before [Astra] sold those products to the Trading Company.
Without explanation, the Arbitration Panel denied Petrobras's motion to compel production of documents and its motion for continuance of the arbitration hearing. Petrobras moved for reconsideration, but the Panel also denied that motion.
Beginning on February 3, 2009, the Arbitration Panel conducted hearings lasting eight days to determine Petrobras's claims and Astra's counter-claims. The parties presented 19 live witnesses and over 500 exhibits.
After the hearings concluded, Petrobras and Astra filed post-hearing opening and response briefs. In its opening post-hearing brief on pages 47 to 49, Petrobras identified a number of issues that had not been raised in the arbitration proceeding. Petrobras wrote, "Unwinding a joint venture is complicated. Before the Panel issues a Final Award requiring a closing on the Minority Puts, the parties must address several outstanding issues." These issues included tax-related matters, a loan from Astra Oil to the Trading Company, and whether Astra was required to provide to Petrobras various indemnities, representations and warranties as part of the put transaction.
The Arbitration Panel issued its Final Award of Arbitrators (the "Award") in a 70-page ruling on April 10, 2009. The Award determined all claims and requests for relief made by the parties. The Panel denied all of Petrobras's claims against Astra; that is, it denied Petrobras's breach of contract and breach of fiduciary duty claims.
The Award also included a provision entitled "Further Discovery," which provides as follows:
[Petrobras] contend[s] that [Astra] must produce additional documents before the Panel can enter an award regarding [Petrobras's] breach of contract claims. More broadly, [the Petrobras entities] argue that [Astra has] abused the discovery process and must produce additional documents before the Panel can issue the award. [The Astra entities] respond to these claims at length and argue that these discovery complaints are unfounded and meant to delay the proceedings.
The Panel concludes [Petrobras's] contentions on these discovery matters are without merit and that further discovery is not warranted. The parties agreed to arbitrate under the International Arbitration Rules of the ICDR, not litigate in a court of law with full-blown judicial discovery procedures. Indeed, the agreements to arbitrate agreed upon by the parties in this particular case provided for expedited arbitration, requiring that the award be made within sixty business days of the demand for arbitration. After the Panel issued its Determination on those threshold issues, and held a procedural hearing, the Panel issued its Pre-Hearing Order No. 3 on November 17, 2008, to govern further proceedings, including discovery. That Order provided in relevant part: "All document discovery sought in this matter shall be reasonable in scope and burden, and consistent with the expedited nature of arbitration." The Order also set a deadline of January 6, 2009 for the completion of fact discovery, and provided that any motions to compel be filed so that the fact discovery cutoff could be preserved. This tailored Order regarding discovery is consistent with the ICDR's International Arbitration Rules (which the parties stipulated would apply) and the ICDR Guidelines for Arbitrators Concerning Exchanges of Information, which apply to all ICDR arbitrations commenced after May 31, 2008. Those Guidelines provide, in relevant part, that "[t]he tribunal shall manage the exchange of information among the parties in advance of the hearings with a view to maintaining efficiency and economy."
The Panel also finds that the discovery authorized here was fully consistent with the scope of discovery authorized by the Rules (see Rules, Articles 16.1, 19 and 36), and afforded all parties a reasonable and fair opportunity to prepare their cases for hearing. The parties report that after Pre-Hearing Order No. 3 was issued, they reviewed "millions of pages of documents in several languages" and produced over 660,000 pages of documents to each other. After reviewing parties' arguments, the Panel concludes that the document discovery permitted in this arbitration was fully consistent with the applicable Rules, and ICDR Guidelines, and was extensive by the standards customarily applicable in international arbitrations. We further find that the [Astra entities] have complied with their discovery obligations and that no further discovery should be ordered. We also find that the additional discovery sought by [Petrobras], if permitted, would unreasonably delay the parties' ability to obtain a Final Award in this arbitration for no persuasive or necessary reason. . . .
The Award also contained a provision entitled, "Alleged Improper Trading" in which the Panel held as follows:
[The Petrobras entities] contend that [the Astra entities] breached their duties under the agreements because respondents improperly profited from product trades its traders made with the trading company. The evidence indicates, however, that the parties were well aware that [Astra's] traders, from time to time, traded directly with the trading company, and that Petrobras' Sergio Baron received deal sheets for such trades. In any event, the Panel concludes that claimants have not shown that [Astra] breached any contractual or other duties nor that any damages were caused by these trades. Accordingly, [the Petrobras entities'] claims based on the [Astra's] trading activities are denied, and are hereby dismissed with prejudice.
The Award required the Astra entities to transfer their ownership rights in PRSI and in the Trading Company to Petrobras no later than April 27, 2009. In exchange, the Petrobras entities were required to make several payments to the Astra entities, totaling $639,166,258.90, to be paid as follows:
• Petrobras America must pay to Astra Oil the sum of $295,629,834, plus $8,301,293 in pre-Award interest, by April 27, 2009, for [Astra Oil's] interest in the PRSI refinery;
• The Petrobras Partners must pay to the Astra Partners $85,367,385 on September 17, 2009, and $85,367,384 on September 17, 2010, for the subsidiaries interests in the Trading Company. Petrobras America is required to guarantee the payments of the subsidiaries;
• The Petrobras Partners must pay to Astra Oil the indemnity obligation of $156,442,878.93, plus $3,364,593 in pre-Award interest, by April 27, 2009. This is reimbursement to Astra Oil Trading for a payment it made to the Trading Company's financing bank pursuant to a guarantee of the Trading Company's debts given by Astra Oil;
• The Petrobras entities shall pay to the Astra entities, by April 27, 2009, the sum of $3,927,140 to reimburse the Astra entities for their legal fees incurred in connection with the arbitration, an additional $732,501 to reimburse the Astra entities for their related legal expenses, and $33,249.97 to reimburse the Astra entities for amounts they overpaid to the International Centre for Dispute Resolution; and
• All sums not paid when due under the Award shall accrue post-Award interest at a rate of 5% compounded annually from and after the date the sums were due.
The Award also ordered that all of Astra's ownership interests in PRSI and the Trading Company "shall be deemed transferred" to the respective Petrobras entities by April 27, 2009.
The Award addressed the additional issues raised by Petrobras on pages 47 to 49 in its opening post-hearing brief. In this regard, the Award provides as follows:
The parties disagree concerning the manner and timing of completing the Minority Put transaction, with [Petrobras] insisting that several additional issues must be addressed prior to any closing, (Claimants' Post-Hearing Op. Br., 47-49), and respondents insisting that no remaining issues exist which should cause any further postponement of the closing. We have previously held [in the interim Award], and confirm herein, that respondents effectively exercised the Minority Puts on July 1, 2008. Articles 5.3 and 9.4 of the Shareholders' Agreement and Partnership Agreement, respectively, contemplate that the resulting Minority Put transaction should have been closed within ninety days of the date of the decision giving rise to the exercise of the Minority Put, i.e., by mid-September 2008. This has not happened. Rather, it is now April 2009, no-amounts have been paid on the Minority Put transaction by claimants, and claimants now seek to delay any closing—and their payment—for some unspecified additional period of time to pursue various additional closing-related issues, none of which are pleaded in their Second Amended Demand for Arbitration. (Compare Second Amended Demand with Claimants, Post-Hearing [Brief], 47-49.) We find that such additional delays are not permissible under the relevant agreements.
The Award also discussed Article 5.3 of the Shareholders Agreement, which provides,
At the Minority Put Closing, Astra shall cause the following to occur: (i) delivery of all the shares of stock and Ownership Interest in PSRI . . ., duly endorsed with such endorsements guaranteed, free of all liens, security interests and encumbrances, and (ii) such other documents and assignments as Petrobras may reasonably request.The Partnership Agreement contains a similar provision in Article 9.4.
At the Minority Put Closing, Petrobras shall cause the following to occur: (i) payment of the Minority Put Price, (ii) the release or indemnity of any and all indebtedness of PRSI that Astra may have guaranteed or credit enhanced . . . , (iii) such other documents and assignments as Astra may reasonably request. In addition, Astra and Petrobras shall sign such other documents and assignments as the other Shareholder reasonably requests.
With regard to these provisions, the Panel stated in the Award as follows:
We find that the provisions of Article 5.3 of the Shareholders' Agreement and the corresponding provision in Article 9.4 of the Partnership Agreement, evidence the intent of the parties that the completion of the Minority Put transaction was intended to finalize simultaneously all matters referenced therein related to transfer of the interests being sold to claimants as a result of the exercise of the Minority Puts.
Accordingly, no later than April 27, 2009, the parties shall comply with all additional requirements of Article 5.3 of the Shareholders' Agreement and Article 9.4 of the Partnership Agreement in addition to the matters discussed above in [the] sub-paragraphs [pertaining to payment and transfer of ownership interests], except to the extent inconsistent with the express provisions of this Award. Any disputes related to performance of any of the additional matters referenced in this subparagraph [], including any of the issues raised at [pages 47 to 49 of Petrobras's post-hearing brief], shall not be grounds to delay performance of any of the obligations specified above in sub-paragraphs [regarding payment and transfer of ownership interests], but rather, if any such dispute cannot be resolved by agreement of the parties, shall be resolved in accordance with the dispute resolution provisions of the Shareholders Agreement and Partnership Agreement.
Astra timely transferred its ownership interests to Petrobras on April 27, 2009, but Petrobras refused to abide by the Award and pay Astra.
Astra filed suit in federal court seeking judicial confirmation of the arbitral award. Petrobras filed a motion for partial vacatur and modification of the Award.Petrobras asserted that the Award should be vacated because the Panel "exceeded its powers" by requiring Petrobras to close the put rights for PRSI and the Trading Company without requiring the Astra entities to deliver their books and records, which Petrobras had requested. Petrobras also asserted that the Panel was "guilty of misconduct" because it refused to postpone the arbitration hearing to permit more discovery. On March 10, 2010, the federal district court confirmed the Award and denied Petrobras's motion for partial vacatur and modification. The federal district later granted Petrobras's motion to dismiss the suit for lack of subject matter jurisdiction and vacated its March 10, 2010 opinion confirming the Award.
See Astra Oil Trading N.V. v. Petrobras Am. Inc., 718 F.Supp. 2d 805 (S.D. Tex. 2010), vacated on reh'g, Astra Oil Trading N.V. v. Petrobras Am. Inc., No. H-09-1274, 2010 WL 3069793 (S.D. Tex. Aug. 4, 2010).
Id. at 718 F. Supp.2d at 812.
Id. at 718 F. Supp.2d at 813.
Id. at 816.
Astra filed this action in state district court seeking judicial confirmation of the Arbitration Award. As it had in the federal action, Petrobras filed an application for partial vacatur and modification of the Award. Petrobras premised its vacatur application on section 10(a) of the Federal Arbitration Act. Petrobras requested the trial court to vacate the portions of the award denying Petrobras's breach of fiduciary claims and its request for additional discovery. Petrobras argued that the Panel was guilty of misconduct by refusing to postpone the hearing and compel the production of the trade documents, specifically, the "deal sheets," showing the price at which Astra had purchased the product before reselling it to Trading Company. Petrobras argued that the trade documents were necessary to support its breach of fiduciary duty claims against Astra. It asserted that the documents would show Astra had usurped a corporate opportunity for the Trading Company to make a profit. Petrobras pointed to correspondence obtained in another suit between the parties confirming that trade folders exist for transactions in which Astra Oil purchased petroleum from a third party and then resold it the Trading Company. Petrobras asserted that these documents would reveal whether Astra's "dealings with the joint venture were fair." Petrobras also points to an email obtained in another suit sent by Astra Oil Trading's president, Mike Winget, stating that the Astra traders seconded to the Trading Company had not been "stellar performers" and that he would "not say more in print!" Petrobras argued in its vacatur application that this indicated wrongdoing by the seconded traders. More precisely, it asserted that it showed the traders engaged "in improper conduct constituting a breach of the contractual fiduciary duties owed to [the Petrobras entities]."
See 9 U.S.C. § 10(a).
As it had in federal court, Petrobras also claimed that the Panel exceeded its authority "by re-writing the closing provisions in the Shareholder Agreement and the Partnership Agreement." Petrobras relies on the fact that "[t]he Award orders [Astra] to close on the purchase of [Petrobras's] PRSI stock and ownership interest in the Trading Company without obtaining the documentation (i.e., the corporate books and records of PRSI and the Trading Company) [Astra] must deliver under the Agreements." Petrobras further alleges that they had asked Astra to deliver these documents but it "refused to do so."
Petrobras further alleged that the portion of the Award ordering the Petrobras Partners to pay Astra Oil $156,442,878.93 to indemnify it for paying part of the Trading Company's debt owed to BNP Paribas should be vacated because that portion of the Award was procured by fraud. In this regard, Petrobras asserted that, since the arbitration hearing, Petrobras had learned that Astra Oil Trading had not paid the funds to BNP Paribas. Rather, the funds had been wire transferred to BNP Paribas's account from the joint bank account of AOT Trading AG and AOT Holding Company Limited. Petrobras argued that Astra Oil was the guarantor on the line of credit with BNP Paribas, and the indemnity obligation was dependent on Astra Oil's payment of the obligation. It argued that because Astra Oil had not made the payment, it was not entitled to indemnity. Petrobras also asserted that Astra Oil had procured the indemnity by fraud because it had represented throughout the arbitration proceedings that it had repaid the funds to BNP Paribas.
After hearing, the trial court confirmed the Arbitration Award; denied Petrobras application for partial vacatur and modification; and signed a final judgment incorporating the amounts awarded by the Arbitration Panel. Petrobras now appeals the judgment.
Petrobras also moved for joinder of a third-party affiliate of Astra, appellee, Pasadena Refinery Holding Partnership because it had claimed an interest in the subject of the award. The trial court granted the motion to join Pasadena Refinery.
On appeal, Petrobras asserts that the trial court erred in confirming the Award and in denying Petrobras's request for partial vacatur. To support reversal of the trial court's judgment, Petrobras raises the same three issues on appeal as it presented in the trial court to oppose confirmation and to support partial vacatur of the Award. In its challenge to the trial court's final judgment, Petrobras asserts as follows:
• The portions of the Award denying Petrobras's breach of fiduciary duty claims and request for further discovery should be vacated. The Arbitration Panel engaged in misconduct when it refused to postpone the arbitration hearing and compel the production of documents, particularly the trade documents disclosing the price at which Astra Oil purchased product before reselling it to the Trading Company.
• The portion of the Award interpreting the closing provisions in the Agreements should be vacated because it "rewrites" the provisions. In so doing, the Panel exceeded its authority.
• The portion of the Award ordering the Petrobras Partners to indemnify Astra Oil should be vacated because Astra misrepresented to the Panel that it had made the payment on which the indemnity was based. Thus, the indemnity award was procured by fraud.
Scope and Standard of Review
Petrobras sought partial vacatur of the Award based solely on the provisions of section 10(a) of the FAA. The parties agree that the FAA governs this case.
An arbitration award must be confirmed unless it is vacated, modified, or corrected pursuant to one of the limited grounds in sections 10 and 11 of the FAA. See 9 U.S.C. §§ 9-11; see also Roehrs v. FSI Holdings, Inc., 246 S.W.3d 796, 805-06 (Tex. App.—Dallas 2008, pet. denied); Hasbro, Inc. v. Catalyst USA, Inc., 367 F.3d 689, 691-92 (7th Cir. 2004) ("Confirmation of an arbitration award is generally routine"). Section 10(a) of the FAA authorizes courts to vacate arbitration awards in four circumstances:
(1) where the award was procured by corruption, fraud, or undue means;9 U.S.C. § 10(a). The party moving to vacate an arbitration award has the burden of proof. Lummus Global Amazonas, S.A. v. Aguaytia Energy del Peru, S.R. LTDA, 256 F. Supp. 2d 594, 604 (S.D. Tex. 2002).
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
We apply de novo review to a trial court's decision confirming an arbitration award, recognizing that the statutory grounds for vacatur under the FAA are limited. Thomas v. Cook, 350 S.W.3d 382, 392 (Tex. App.—Houston [14th Dist.] 2011, pet. denied); see also Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 582-89, 128 S. Ct. 1396, 1402-06 (2008). In our analysis, we review the entire record. Ouzenne v. Haynes, No. 01-10-00112-CV, 2011 WL 1938430 at *1 (Tex. App.—Houston [1st Dist.] May 12, 2011, no pet.) (mem. op.).
An arbitration award has the same effect as a judgment of a court of last resort; accordingly, all reasonable presumptions are indulged in favor of the award, and the award is conclusive on the parties regarding all matters of fact and law. Ouzenne, 2011 WL 1938430, at *1 (citing CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 238 (Tex. 2002)). Review of an award is so limited that even a mistake of fact or law by the arbitrator in the application of substantive law is not a proper ground for vacating an award. Id. (citing Crossmark, Inc. v. Hazar, 124 S.W.3d 422, 429 (Tex. App.—Dallas 2004, pet. denied)).
Misconduct by the Panel
In their second issue, Petrobras asserts that the trial court should have vacated the portions of the Award denying its claims and its request for additional discovery. Petrobras contends that the Arbitration Panel engaged in misconduct when it refused to postpone the arbitration hearing and compel production of documents relevant to Appellants' claims. Petrobras summarizes its argument with respect to this issue as follows:
Despite conclusive proof that Astra intentionally withheld relevant and responsive documents bearing directly on Petrobras's fiduciary-duty claims, the Panel refused to postpone the final arbitration hearing and compel the production of those documents Petrobras needed for its claim. Thus, the panel deprived Petrobras of a fundamentally fair hearing and committed misconduct.
FAA Section 10(a)(3) provides that an arbitration award may be vacated "where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown . . . or of any other misbehavior by which the rights of any party have been prejudiced." 9 U.S.C. § 10(a)(3). "To constitute misconduct requiring vacation of an award, an error in the arbitrator's determination must be one that is not simply an error of law, but which so affects the rights of a party that it may be said that he was deprived of a fair hearing." Laws v. Morgan Stanley Dean Witter, 452 F.3d 398, 399 (5th Cir. 2006) (citing El Dorado Sch. Dist. No. 15 v. Cont'l Cas. Co., 247 F.3d 843, 848 (8th Cir. 2001); see also Apex Fountain Sales v. Kleinfeld, 818 F.2d 1089, 1094 (3d Cir. 1987) ("Under Federal law, misconduct apart from corruption, fraud, or partiality in the arbitrators justifies reversal only if it so prejudices the rights of a party that it denies the party a fundamentally fair hearing.").
As discussed, Petrobras alleged that Astra breached its fiduciary duty by purchasing petroleum products from third parties and then reselling the product to the Trading Company at a higher price than Astra had paid for it. In this regard, Petrobras asserted that Astra engaged in self-dealing by usurping a corporate opportunity belonging to the Trading Company to make a profit. Petrobras requested the Panel to order Astra to produce certain categories of documents, including trade documents. Petrobras also moved the Panel to postpone the arbitration hearing.
In its opening brief on appeal, Petrobras asserts as follows:
After Petrobras was alerted to Astra's withholding of documents, it moved to compel production and requested a postponement of the hearing. Petrobras submitted proof that Astra withheld specific documents including trading contracts and "deal sheets" that bore directly on Petrobras's claims. The Panel, however, ignored these facts and denied Petrobras's requests to compel the production of documents and to postpone the hearing. The panel thereby forced Petrobras to prosecute its claims without the very documents necessary to fully prove them, and then ruled that Petrobras failed to carry its burden of proof.
To support its assertion that Astra withheld documents relevant to Petrobras's breach of fiduciary duty claim, Petrobras points to documents produced in a separate suit involving the parties. These documents include the email from Astra Oil Trading's president, Mike Winget, stating that the Astra traders seconded to the Trading Company had not been "stellar performers" and that he would "not say more in print!" Petrobras suggests that the statement indicates improper conduct by the Astra traders who worked at the Trading Company. Petrobras also points to documents relating to a specific, identifiable trade in which Astra sold product to the Trading Company that Astra had purchased from an undisclosed third party for an unknown price.
Nothing in the record indicates that the traders' performance referenced by Winget related to the allegations of self-dealing made by Petrobras. However, Petrobras asserts that it was entitled to information regarding the traders' performance and suggests that the email may have led to additional relevant information.
Petrobras also discusses additional documents discovered in separate state court litigation. These documents do not relate directly to the breach of fiduciary duty claim or to the trading activities; instead, they relate to other issues determined in the arbitration, such as the value of the put option exercised by Astra. Petrobras also points to correspondence indicating that documents claimed by Astra in the arbitration to be privileged were not privileged. Petrobras appears to cite these documents to show that Astra had engaged in a pattern of discovery abuse and to show that it was prejudiced by Astra's conduct. Petrobras also points out that the federal district court, which initially confirmed the Award, remarked in a footnote to its opinion vacating its earlier opinion and dismissing the action, that email chains had been discovered in a state court proceeding between the parties that appear to have been relevant to the arbitration but were not produced. See Astra Oil Trading NV v. Petrobras Am., Inc., No. H091274, 2010 WL 3069793, at *5 n.17 (S.D. Tex. Aug. 4, 2010). The federal court did not state that it believed its earlier confirmation of the Arbitration Award had been in error; nor did it otherwise explain the significance of the newly discovered documents it found to be relevant to the arbitration. The footnote has no bearing on our review here.
Petrobras acknowledges the extensive testimony heard by the Panel at the arbitration hearing regarding the trades. This testimony included a great deal of information regarding pricing of the product and whether Astra had profited from these deals to the detriment of the Trading Company. Nonetheless, Petrobras avers that it was prejudiced by the Panel's denial of its motions to compel and to postpone the hearing. It asserts that it did not have the trade documents, including the deal sheets, to conduct a meaningful and effective cross-examination of Astra's witnesses. In short, it asserts that it was denied a fundamentally fair hearing on its breach of fiduciary claims.
The standard, however, is not whether Petrobras would have benefitted from the trade documents' production. "Arbitrators are not bound by formal rules of procedure and evidence, and the standard for judicial review of arbitration procedures is . . . whether a party to arbitration has been denied a fundamentally fair hearing." Nat'l Post Office v. U.S. Postal Serv., 751 F.2d 834, 841 (6th Cir. 1985). This is in line with the general purpose of arbitration to promote a speedy and efficient resolution to conflicts without the formalities of litigation. See, e.g., Admart AG v. Stephen & Mary Birch Found., Inc., 457 F.3d 302, 311 (3d Cir. 2006); Aerojet-Gen. Corp. v. Am. Arbitration Ass'n, 478 F.2d 248, 251 (9th Cir. 1973). The United States Supreme Court has explained, "[B]y agreeing to arbitrate, a party 'trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration.'" Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 31, 11 S. Ct. 1647, 1655 (1991). These principles are reflected, here, in the parties' arbitration agreement; the parties agreed to expedited arbitration with an award to be made within 60 business days of the arbitration demand.
With respect to discovery in the context of arbitration, one court explained,
[A]rbitrators are not required to sacrifice speed or informality in order to permit a party to introduce every piece of relevant evidence. . . . Although arbitrators may not deny discovery of documents which are central to a dispute, they may conduct only such discovery as they find necessary and can refuse discovery of evidence of uncertain relevance or evidence related to non-merits issues.Roberts v. A.G. Edwards & Sons, Inc., No. B-06-17, 2007 WL 597371, at *7 (S.D. Tex. Feb. 21, 2007) (citations omitted). Nonetheless, courts have recognized that fundamental fairness requires that each party have an adequate opportunity to present its evidence and its arguments. Forsythe Int'l, S.A. v. Gibbs Oil Co, 915 F.2d 1017, 1023 (5th Cir. 1990); Int'l Bank of Commerce-Brownsville v. Int'l Energy Dev. Corp., 981 S.W.2d 38, 42-3 (Tex. App.—Corpus Christi 1998, pet. denied) (citing Bos. Celtics Ltd. P'shp v. Shaw, 908 F.2d 1041, 1046-47 (1st Cir. 1990)). Thus, the inquiry here is whether Petrobras proved that the Panel's decision not to order further discovery and postpone the arbitration hearing deprived Petrobras of a fair hearing. If the answer is no, then the trial court correctly determined that the Panel did not engage in misconduct that would warrant vacatur under FAA section 10(a)(3).
During the eight-day arbitration hearing, counsel for each side elicited direct testimony and conducted in-depth cross-examination regarding the propriety of the trades at issue. Fernando Assad testified in support of Petrobras's claims that Astra had engaged in self-dealing. Astra offered the testimony of its representatives Alberto Felhaber and Irek Kotula. The witnesses testified regarding the mechanics of the trades, internal procedures to ensure the integrity of the transactions, pricing, profits, deal sheets, and a myriad of other related issues. Significantly, Irek Kotula, an Astra managing trader who worked at the Trading Company, testified that the deal sheets for the trades were sent to two members of the Trading Company's board of directors, including a representative of Petrobras, Sergio Baron, "for oversight and questions."
In the portion of Award denying Petrobras's claims based on the trades, the Panel wrote as follows:
The evidence indicates . . . that the parties were well aware that [Astra's] traders, from time to time, traded directly with the Trading Company, and that Petrobras' Sergio Baron received deal sheets for such trades. In any event, the Panel concludes that [Petrobras has] not shown that [Astra] breached any contractual or other duties nor that any damages were caused by these trades.
As indicated by this provision, the Panel chose to believe Kotula's testimony. See Ouzenne, 2011 WL 1938430, at *2 (stating that arbitrator judges credibility of witnesses and may choose who to believe or to disbelieve). Given the extensive testimony regarding the trades offered by each side, including Kotula's testimony that Petrobras had received the deal sheets through Baron, the record does not demonstrate that Petrobras lacked sufficient information to cross-examine Astra's witnesses or to prosecute its breach of fiduciary claims against Astra.
The record shows that, after the Panel had heard the evidence in this case, Petrobras was afforded another opportunity to demonstrate why it was entitled to additional discovery. The Panel's Award indicates that it considered Petrobras's arguments regarding the need for additional discovery before issuing the Award. The Panel made this evaluation after hearing the evidence in the case.
As set forth more fully infra, the Panel provided a lengthy and thoughtful explanation regarding why no further discovery was needed. In pertinent part, the Panel explained that "the discovery authorized here was fully consistent with the scope of discovery authorized by the [Arbitration] Rules . . . and afforded all parties a reasonable opportunity to prepare their cases for hearing." The Panel continued that it found that Astra had "complied with [its] discovery obligations and that no further discovery should be ordered." The Panel concluded that "the additional discovery sought by [Petrobras], if permitted, would unreasonably delay the parties' ability to obtain a Final Award in this arbitration for no persuasive or necessary reason."
We conclude that Petrobras has failed to show that it did not receive a full and fair hearing on its breach of fiduciary duty claims as a result of the Panel's denial of its request for additional discovery and its concomitant request to postpone arbitration. We further conclude that Petrobras has not shown that the Panel engaged in misconduct entitling Petrobras to partial vacatur of the Award. See 9 U.S.C. § 10(a)(3). We hold that the trial court properly denied Petrobras's motion for partial vacatur of the portions of the Award denying Petrobras's claims and its request for further discovery.
As an alternative to partial vacatur, Petrobras requested the trial court to allow it to conduct additional discovery. The trial court denied the relief. Petrobras requests this Court to remand the case to the trial court for additional discovery regarding the documents allegedly withheld by Astra. Petrobras asserts in its brief that "discovery is available in a post-arbitration proceeding when relevant and necessary to the determination of an issue raised by a party's vacatur motion." It cites Karlseng v. Cooke for support. 286 S.W.3d 51, 58 (Tex. App.— Dallas 2009, no pet.).
In Karlseng, the court reversed the trial court's confirmation of the arbitration award after concluding that the trial court abused its discretion by denying appellants' motion for continuance to investigate the evident partiality of the arbitrator. Id. The court held that the trial court abused its discretion by failing to grant the requested continuance after being presented uncontradicted evidence that the arbitrator failed to disclose a prior relationship with appellee's lead counsel. Id.
In contrast, Petrobras's sole argument on appeal is that "new evidence that came to light after the arbitration provides clear proof that discovery abuse did occur, and warrants discovery into this issue." Petrobras offers no further argument to show how the trial court abused its discretion in denying its discovery request. As discussed above, the Arbitration Panel concluded that it had sufficient evidence to determine Petrobras's claims. It was well aware that Petrobras wanted to obtain copies of the Astra's trade files for certain transactions.
None of the "newly discovered evidence," referenced by Petrobras in other portions of its brief, shows that Astra engaged in self-dealing. In fact, at the hearing on its vacatur motion, Petrobras's counsel acknowledged that Petrobras did not know whether the trade files would show any wrongdoing by Astra.
In short, Petrobras does not explain how any of the "newly discovered evidence" will advance its request for vacatur beyond its general allegation that Astra engaged in a pattern of discovery abuse. Petrobras has not shown that the trial court abused its discretion in denying the request for additional discovery.
We overrule Petrobras's second issue.
Exceeding Authority
In its third issue, Petrobras contends that the Award should be vacated because the Panel exceeded its authority by "rewriting" the parties' agreements to require Petrobras to close the put rights for PRSI and the Trading Company without, in turn, requiring Astra to deliver its books and records, which Petrobras had requested. This argument falls within Section 10(a)(4) of the FAA which provides that an arbitration award may be vacated "where the arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4).
Article 5.3 of the Shareholder Agreement and Article 9.4 of the Partnership Agreement provide that if the Astra entities validly exercise their put rights, the parties are required to proceed to closing. Those provisions required the Petrobras entities to pay the put prices for the companies. The Agreements required Astra to transfer ownership in the companies to Petrobras and to deliver "documents and assignments as [Petrobras] may reasonably request."
Petrobras complains that the second paragraph of following provision in the Award impermissibly "rewrites" the agreement by forcing it to pay the put prices for the companies, even if Astra fails to deliver documents Petrobras had reasonably requested:
We find that the provisions of Article 5.3 of the Shareholders' Agreement and the corresponding provision in Article 9.4 of the Partnership Agreement, evidence the intent of the parties that the completion of the Minority Put transaction was intended to finalize simultaneously all matters referenced therein related to transfer of the
interests being sold to claimants as a result of the exercise of the Minority Puts.
Accordingly, no later than April 27, 2009, the parties shall comply with all additional requirements of Article 5.3 of the Shareholders' Agreement and Article 9.4 of the Partnership Agreement in addition to the matters discussed above in [the] sub-paragraphs [pertaining to payment and transfer of ownership interests], except to the extent inconsistent with the express provisions of this Award. Any disputes related to performance of any of the additional matters referenced in this subparagraph [], including any of the issues raised at [pages 47 to 49 of Petrobras's post-hearing brief], shall not be grounds to delay performance of any of the obligations specified above in sub-paragraphs [regarding payment and transfer of ownership interests], but rather, if any such dispute cannot be resolved by agreement of the parties, shall be resolved in accordance with the dispute resolution provisions of the Shareholders' Agreement and Partnership Agreement.
"Arbitration is a matter of contract: The powers of an arbitrator are dependent on the provisions under which the arbitrators were appointed." Apache Bohai Corp. LDC v. Texaco China BV, 480 F.3d 397, 401 (5th Cir. 2007) (internal quotation marks omitted) (quoting Brook v. Peak Int'l, Ltd., 294 F.3d 668, 672 (5th Cir. 2002)). "Where arbitrators act 'contrary to express contractual provisions,' they have exceeded their powers." Id. (quoting Delta Queen Steamboat Co. v. AFL-CIO, 889 F.2d 599, 604 (5th Cir. 1989)).
When an arbitration agreement gives an arbitrator authority to interpret and apply a contract, the arbitrator's construction of that contract must be enforced so long as it is "rationally inferable from the letter or purpose of the underlying agreement." Glover v. IBP, Inc., 334 F.3d 471, 474 (5th Cir. 2003) (quoting Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th Cir. 1994); see also Halliburton Energy Servs., Inc. v. NL Indus., 553 F. Supp. 2d 733, 754 (S.D. Tex. 2008). In deciding what is rationally inferable from the underlying contract, a court is guided by the usual state-law rules of contract interpretation. Glover, 334 F.3d at 474. "[I]f an arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, the fact that a court is convinced he committed serious error does not suffice to overturn his decision." Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509, 121 S. Ct. 1724, 1728 (2001) (internal citations omitted).
Here, the Agreements authorized the Panel to resolve "any dispute arising out of or relating to [these Agreements]." Thus, the Panel had authority pursuant to the Agreements to interpret the contractual provisions. Petrobras does not argue that the Panel did not have authority to interpret the Agreements. Instead, Petrobras intimates that the Panel did not merely interpret the Agreements but rewrote them by omitting the document production requirement. Petrobras contends that the Panel acted contrary to the express contractual provisions of the Agreements because it did not require Astra to deliver at closing documents reasonably requested by Petrobras.
Contrary to Petrobras's reading, the Award requires Astra to comply with all closing provisions. This necessarily includes requirement that Astra deliver the reasonably requested documents at closing. The Panel did not omit or exclude these provisions or otherwise absolve Astra from performance. Thus, the Award requires Astra to deliver reasonably requested documents at the closing on April 27, 2009, when Petrobras "simultaneously" fulfilled its payment obligations under the Agreements.
The Panel's Award makes clear, however, that regardless of whether Astra delivers the requested documents at closing, Petrobras must still fulfill its payment obligation, and Astra must still fulfill its obligation to deliver its ownership interests in the companies. Pursuant to the Panel's interpretation of the closing provisions, nonperformance of the document delivery requirement does not authorize delayed performance by Petrobras regarding payment or by Astra regarding transfer of its ownership rights. In other words, the Panel interpreted the provision regarding the delivery of the documents not to be a condition precedent that must be performed to trigger Petrobras's payment obligation under the Agreements. Rather, the Panel interpreted the document delivery provisions to be covenants that, if not performed, could be resolved by additional arbitration. See Solar Applications Eng'g, Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 108 (Tex. 2010) (discussing distinction between a condition precedent and a covenant).
In sum, the Panel had the authority to interpret the Agreements. When it determined that Petrobras's performance was not conditioned on Astra's delivery of the documents, the Panel was applying the law and interpreting the Agreements; it was not rewriting them. In actuality, what Petrobras is asking this Court to do is exactly what we cannot: second-guess the Panel's decision on the merits of contract interpretation. See Kergosien v. Ocean Energy, Inc., 390 F.3d 346, 353 (5th Cir. 2004) ("[S]o far as the arbitrator's decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different than his.").
We conclude that Petrobras has not shown that the Panel exceeded its authority. We hold that the trial court properly denied Petrobras's motion for partial vacatur with respect to this ground.
We overrule Petrobras's third issue.
Procuring Award through Fraud
In its fourth issue, Petrobras asserts that the portion of the Award ordering Petrobras to pay Astra $156 million for indemnity should be vacated because that portion of the Award was procured through fraud. Section 10(a)(1) of the FAA provides that an arbitration award may be vacated "where the award was procured by corruption, fraud, or undue means." 9 U.S.C. § 10(a)(1).
A party alleging that an arbitration award was procured through corruption, fraud, or undue means must demonstrate that the improper behavior was (1) not discoverable by due diligence before or during the arbitration hearing, (2) materially related to an issue in the arbitration, and (3) established by clear and convincing evidence. See Roehrs, 246 S.W.3d at 810-11; In re Arbitration Between Trans Chem. Ltd. & China Nat'l Mach. Imp. & Exp. Corp., 978 F. Supp. 266, 304 (S.D. Tex. 1997). Fraud requires a showing of bad faith during the arbitration proceedings, such as bribery, undisclosed bias of an arbitrator, or willfully destroying or withholding evidence. Roehrs, 246 S.W.3d at 812; In re Arbitration Between Trans Chem. Ltd. & China Nat' l Mach. Imp. & Exp. Corp., 978 F. sSupp. at 304. Section 10(a)(1) also requires a nexus between the alleged fraud and the basis for the arbitrator's decision. In re Arbitration Between Trans Chem. Ltd. & China Nat' l Mach. Imp. & Exp. Corp., 978 F. Supp. at 304; Forsythe Int'l S.A. v. Gibbs Oil Co., 915 F.2d 1017, 1022 (5th Cir. 1990).
In its opening brief, Petrobras asserts as follows with regard to its fraud claim:
In support of this indemnification claim, [Astra Oil Trading] submitted sworn testimony from Kari Burke, an accountant employed by one of [Astra Oil Trading's] affiliates. Burke specifically asserted that [Astra Oil] had made the $156 million payment, stating that "[Astra Oil] paid to [BNP] Paribas on November 3, 2008, by wire transfer, the total demanded of [Astra Oil] by [BNP] Paribas, an amount of . . . $156,442,878.93." [Astra Oil] also represented in its pleadings that it had made the $156 million payment. The Panel accepted these representations and Burke's testimony about [Astra Oil] making the payment as true, and awarded [Astra Oil Trading] the indemnity.
However, it was later shown in [Astra Oil's] lawsuit with PRSI and PRSI Trading [in another court] that [Astra Oil] did not in fact
make the $156 million payment that allegedly gave rise to its claim for indemnification. Rolf Mueller, [Astra Oil Trading's] Chief Financial Officer, admitted that the $156 million payment originated from a UBS bank account jointly owned by two separate entities, AOT Trading AG and AOT Holding Ltd., and not [Astra Oil Trading]. . . .
[Astra Oil's] misrepresentations about the source of the $156 million payment require vacatur of the portion of the award granting it an indemnity for this amount. [Astra Oil] knew before making its indemnification claim in the arbitration that the $156 million payment had actually been made by AOT Holding, but it failed to disclose that critical fact to the Panel, and instead misrepresented that [Astra Oil] had made the payment.
Regardless of the propriety of these allegations, Petrobras made no showing that the fraud was not discoverable on the exercise of due diligence before or during arbitration. To the contrary, documents submitted by Astra in response to the vacatur motion show that, before the arbitration, Petrobras was aware that the funds had been wire transferred from AOT Trading AG's bank account.
We conclude that Petrobras failed to show that the $156 million indemnity award was procured by fraud. We hold that the trial court properly denied the motion for partial vacatur with respect to this ground.
We overrule Petrobras's fourth issue.
Having overruled Petrobras's second, third, and fourth issues identifying specific grounds to reverse the trial court's judgment, we also overrule Petrobras's first issue which raised a global challenge to the judgment.
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Conclusion
We affirm the judgment of the trial court.
Laura Carter Higley
Justice
Panel consists of Chief Justice Radack and Justices Higley and Brown.