Soaring Wind Energy, LLC v. Catic United States, Inc.

Before the Court are: (1) Movants Soaring Wind Energy, LLC, Tang Energy Group, Ltd., The Nolan Group, Inc., Keith P. Young, Mitchell W. Carter, and Jan Family Interests Ltd.'s Motion to Confirm Arbitration Award Against Respondent AVIC International USA, Inc. and Motion to Confirm Arbitration Award Against All Other Respondents (Doc. No. 1); and (2) Respondent AVIC International USA, Inc.'s Motion to Vacate Arbitration Award (Doc. No. 157). The Court has carefully reviewed the motions, responses, replies, the extensive record, the applicable law, and the arbitration award. The Court finds no grounds upon which it must vacate, modify, or correct the arbitration award as to Respondent AVIC USA, Inc. ("AVIC USA"). See 9 U.S.C. §§ 9 - 11. The Court must confirm the arbitration award against AVIC USA because the arbitrators' ruling as to the liability of AVIC USA " 'draws its essence' " from the Soaring Wind Energy Agreement. Accordingly, the Court GRANTS Movants' Motion to Confirm Arbitration Award Against Respondent AVIC International USA, Inc. and DENIES Respondent AVIC USA's motion to vacate the arbitration award.

I. Factual and Procedural Background

In 2008, Soaring Wind Energy, LLC ("SWE") was created with a Limited Liability *649Company Agreement ("the Agreement" or "the SWE Agreement"). The members of SWE are Respondent AVIC USA, non-party Paul E. Thompson ("Thompson"), and Movants Tang Energy Group, LLC ("TEG"), Keith P. Young, Mitchell W. Carter, Jan Family Interests, Ltd., and The Nolan Group, Inc. (collectively "Movants"). AVIC USA held a 50% membership in SWE, while the five Movants held the other 50% membership in varying percentages. The Agreement defined the purpose and nature of SWE's business:

The purpose and nature of the business to be conducted by the Company shall be to provide worldwide marketing of wind energy equipment, services and materials related to wind energy including, but not limited to, marketing wind turbine generator blades and wind turbine generators and developing wind farms (the "Business"), and to engage in any other business or activity that now or hereafter may be necessary, incidental, proper, advisable or convenient to accomplish the foregoing purposes (including the borrowing of money and the investment of funds) and that is not forbidden by the law of the jurisdiction in which the Company engages in that business.

The Agreement also contains a Dispute Resolution section ("Arbitration Provision") requiring disputes to be resolved in binding arbitration. The Arbitration Provision of the Agreement provides for the following process:

(a) The Disputing Member desiring to initiate arbitration in connection with any Dispute shall notify the other Disputing Members in writing, which notice shall provide the name of the Arbitrator appointed by the Disputing Member, demand arbitration and include a statement of the matter in controversy.

(b) Within 15 days after receipt of such demand, each other Disputing Member receiving notice of the Dispute shall name an Arbitrator.... The Arbitrators so selected shall within 15 days after their designation select an additional Arbitrator.... In the event that there are more than two Disputing Members to the Dispute, then unless otherwise agreed by the Disputing Members, the Arbitrators selected by the Disputing Members shall cause the appointment of either one or two Arbitrators as necessary to constitute an odd number of total Arbitrators hearing the Dispute.

It defines "Disputing Member" as "each Member that is a party to such Dispute." "Member" is defined as "either a Class A Member or a Class B Member, or any Person hereafter admitted to the Company as a member as provided in this Agreement, but such term does not include any Person who has ceased to be a member in the Company."

In June 2014, TEG filed a Demand for Arbitration, joined by the other Movants, asserting a claim for breach of Agreement against the Respondents-Signatories AVIC USA and Thompson as well as the Non-Signatory Respondents Aviation Industry Corporation of China, China Aviation Industry General Aircraft Co., Ltd., AVIC International Holding Corp., AVIC International Renewable Energy Corp., and CATIC TED, Ltd. (collectively "Non-Signatories"). The Non-Signatories are foreign companies. After the arbitration demand was made, each SWE member selected an arbitrator for a total of seven (7) arbitrators being selected-one each by AVIC USA and Thompson, as well as one by each of the five Movants. Following the process set out in the Arbitration Provision, those seven arbitrators then selected two additional arbitrators, resulting in a nine-member arbitration panel ("the Panel")

*650in the proceeding. The Panel later permitted SWE to intervene as a party to the Arbitration. The Non-Signatory Respondents objected to any attempt to subject them to arbitration, and provided notice that they would not participate in the arbitration.

On August 5, 2014, after the Panel had been composed but before an arbitration award had issued, AVIC USA filed a complaint for declaratory judgment, seeking the Court's intervention related to the composition of the Panel and also a stay of the arbitration proceedings. AVIC Int'l USA, Inc. v. Tang Energy Grp., Ltd. , Civil Action No. 14-CV-2815-K ("AVIC USA I case") (Doc. No. 1). The Court granted Defendant TEG's motion to dismiss, finding the Court had no jurisdiction to address AVIC USA's claims or grant the relief requested. AVIC Int'l USA, Inc. v. Tang Energy Grp., Ltd. , Civil Action No. 14-CV-2815-K, 2015 WL 477316, at 4-5 (N.D. Tex. Feb. 5, 2015). The Fifth Circuit affirmed this Court's ruling. AVIC Int'l USA, Inc. v. Tang Energy Grp., Ltd. , 614 F. App'x 218, 219 (5th Cir. 2015) (" AVIC USA I appeal").

On September 12, 2014, again before an arbitration award had issued, Ascendant Renewable Energy Corporation ("Ascendant"), a named Respondent in the arbitration but a non-signatory to the SWE Agreement, filed a complaint for declaratory judgment. Ascendant Renewable Energy Corp. v. Tang Energy Grp., Ltd. , Civil Action No. 14-CV-3314-K ("Ascendant case") (Doc. No. 1). Ascendant sought a stay of the arbitration and a declaration from the Court regarding its party status to the arbitration, including whether the Panel or a court must determine if Ascendant was a proper party to the arbitration as a non-signatory to the SWE Agreement which contained the arbitration provision. Id. (Doc. No. 1). On August 4, 2015, the Court granted Ascendant's motion for summary judgment, declaring:

(1) whether Ascendant, a non-signatory to the Agreement, can be subject to arbitration based on the arbitration clause of the Agreement is for a court, not the arbitration panel, to decide because Ascendant disputes the very existence of an agreement between these parties; and (2) because the existence of any agreement between these parties is in dispute, any determination by the arbitration panel as to the jurisdiction over Ascendant is not controlling on a court.

Ascendant Renewable Energy Corp. v. Tang Energy Grp., Ltd. , Civil Action No. 14-CV-3314-K, 2015 WL 4713240, at *3 (N.D. Tex. Aug. 4, 2015). The Court denied as moot the requested stay. No appeal was taken in that matter.

The arbitration hearing occurred August 10-14, 2015. On December 21, 2015, the Panel issued their Final Award. The panel concluded, in relevant part, that: (1) the SWE members vested the Panel with authority to determine their own jurisdiction, including arbitrability of any claim or defense, such as any dispute related to the interpretation or construction of any provision in the Agreement; (2) AVIC USA's "Affiliates", as defined in the Agreement, engaged in the "Business" of SWE in violation of the Agreement's covenant not to compete; (3) AVIC USA as a Signatory was liable for its Affiliates' breach of the Agreement; (4) the Movants were entitled to damages for lost profits relating to the breach and AVIC USA should be divested of its membership interest in SWE; (5) SWE properly intervened to assert its own claims for damages; (6) SWE was entitled to $62.9 million in damages and TEG was entitled to arbitration fees, attorneys' fees, and expenses (up through a final appeal to the United States Supreme Court) allocated against all Respondents *651except Thompson; and (7) the Movants were the "prevailing Members" as defined in the Agreement.

Before the Court now are the Movant's motion to confirm the arbitration award and the AVIC USA's motion to vacate the arbitration award.

II. Applicable Law

There is a strong federal policy favoring arbitration, as reflected in the Federal Arbitration Act ("FAA"). See Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 586-590, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). "Judicial review of an arbitration award is extraordinarily narrow and [the courts] should defer to the arbitrator's decision when possible." Antwine v. Prudential Bache Sec., Inc. , 899 F.2d 410, 413 (5th Cir. 1990) ; see Rain CII Carbon, LLC v. ConocoPhillips Co. , 674 F.3d 469, 471-72 (5th Cir. 2012) ; Brabham v. A.G. Edwards & Sons Inc. , 376 F.3d 377, 385 (5th Cir. 2004) ("Our established rules of deference foreclose all but the most limited review."). The FAA permits a district court to vacate an arbitration award in these very limited circumstances:

(1) where the award was procured by corruption, fraud, or undue means;

(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 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.

9 U.S.C. § 10(a). These are the exclusive grounds on which a court may vacate an arbitration award under the FAA. Hall St. Assocs., 552 U.S. at 586-590, 128 S.Ct. 1396 (holding " §§ 10 and 11 provide exclusive regimes for the review provided by the [FAA]"); see Citigroup Glob. Mkts., Inc. v. Bacon , 562 F.3d 349, 355 (5th Cir. 2009). An arbitration award may not be vacated for "mere mistake of fact or law." Rain CII Carbon , 674 F.3d at 472 (internal quotation marks omitted).

The party seeking vacatur of an arbitration award bears the burden of proof, and the reviewing court must decide any uncertainties or doubts in favor of sustaining the award. Brabham , 376 F.3d at 385. In reviewing an arbitration award, the court applies the "essence" test. See Timegate Studios, Inc. v. Southpeak Interactive, L.L.C. , 713 F.3d 797, 802 (5th Cir. 2013) ; Executone Info. Sys., Inc. v. Davis , 26 F.3d 1314, 1320 (5th Cir. 1994). The court must confirm an arbitration award "as long as the arbitrator's decision 'draws its essence' from the contract," in other words "the arbitrator's decision is rationally inferable from the letter or purpose of the underlying agreement." Timegate Studios , 713 F.3d at 802 (quoting Executone , 26 F.3d at 1320 ). "[T]he question is whether the arbitrator's award was so unfounded in reason and fact, so unconnected with the wording and purpose of the ... agreement as to manifest an infidelity to the obligation of an arbitrator." Executone , 26 F.3d at 1325 (internal quotations omitted). It is irrelevant whether the reviewing court disagrees with the arbitrator's interpretation of the contract. Timegate Studios , 713 F.3d at 802. The reviewing court considers only the arbitrators' resulting decision and "does not review the language used by, or the reasoning of, the arbitrators in determining whether their award draws its essence from the contract." Executone , 26 F.3d at 1325 (internal quotations *652omitted). "Because the parties have contracted to have disputes settled by an arbitrator chosen by them rather than by a judge, it is the arbitrator's view of the facts and of the meaning of the contract that they have agreed to accept. Courts thus do not sit to hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts." United Paperworkers Int'l Union v. Misco, Inc. , 484 U.S. 29, 37-38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987).

The arbitrators' powers and authority are " 'dependent on the provisions under which the arbitrators were appointed.' " Brook v. Peak Int'l, Ltd. , 294 F.3d 668, 672 (5th Cir. 2002) (quoting Szuts v. Dean Witter Reynolds, Inc. , 931 F.2d 830, 831 (11th Cir. 1991) ). "Whether an arbitrator has exceeded his powers is tied closely to the applicable standard of review"-that being whether the arbitrator's decision "draws its essence" from the underlying contract. Timegate Studios , 713 F.3d at 802. The court looks to "whether the arbitrator's award 'was so unfounded in reason and fact, so unconnected with the wording and purpose of the [contract] as to "manifest an infidelity to the obligation of an arbitrator." ' " Id. (quoting Brotherhood of R.R. Trainmen v. Cent. of Ga. Ry. Co. , 415 F.2d 403, 412 (5th Cir. 1969) ). " '[A]s long as [an honest] 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.' " E. Associated Coal Corp. v. United Mine Workers of Am. , 531 U.S. 57, 62, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000) (internal citations omitted). The reviewing court must resolve all doubts in favor of arbitration. Executone , 26 F.3d at 1320-21.

The Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the Convention") applies "if the [arbitration] award arises out of a commercial dispute and at least one party is not a United States citizen." Asignacion v. Rickmers Genoa Schiffahrtsgesellschaft mbH & Cie KG , 783 F.3d 1010, 1015 (5th Cir. 2015). Arbitration awards governed by the Convention are enforced under the FAA. 9 U.S.C. § 201. Just as review is exceedingly narrow under the FAA, the Convention does not permit a reviewing court to "refuse to enforce the award solely on the ground that the arbitrator may have made a mistake of law or fact." See Asignacion , 783 F.3d at 1015. A court must confirm the arbitration award unless the party opposing confirmation meets its burden of establishing a reason under Article V of the Convention for the court to deny enforcement of the arbitral award. See ids="4149279" index="39" url="https://cite.case.law/f3d/783/1010/#p1015">id. at 1015-1016.

III. Application of the Law to the Facts

A. Selection and Composition of Arbitration Panel

AVIC USA first insists the arbitration award must be vacated because the Panel was selected in violation of the Agreement's terms and, alternatively, the composition of the Panel violates public policy and due process.

1. Did the Arbitrators' Appointment Violate the SWE Agreement?

AVIC USA contends the Panel exceeded their powers, as defined in Section 10, because they were "not selected in accordance with the provisions of the Agreement," so the award must be vacated. AVIC USA argues that the clear language of the Agreement requires the appointment of one arbitrator per side, not one arbitrator per member; this was AVIC USA's understanding of the selection provision and it would never "agree[ ] to nor contemplate[ ] arbitrating a two-sided dispute *653in which one side chose five arbitrators and the other side chose two."

a) Procedural Challenge for the Panel

Regardless of how AVIC USA tries to frame this argument, it comes down to a " 'challenge[ ] that essentially [goes] to the procedure of arbitration.' " Adam Techs. Int'l S.A. de C.V. v. Sutherland Glob. Servs., Inc. , 729 F.3d 443, 452 (5th Cir. 2013) (quoting Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co. , 304 F.3d 476, 488 (5th Cir. 2002) ). AVIC USA's argument turns on the fairness of the selection process. Such "procedural questions" are presumed to be for an arbitrator to decide. Adam Techs. Int'l , 729 F.3d at 452 (citing Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 84, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) ). AVIC USA has advanced no compelling argument or evidence to establish otherwise.

Article XIII of the SWE Agreement addresses the parties' agreement on Dispute Resolution. Section 13.1 provides, in relevant part, the Arbitration Provision "shall apply to any controversy, dispute or claim arising under or related to this [SWE] Agreement ... including (a) any dispute regarding the construction, interpretation, performance, validity or enforceability of any provision of this [SWE] Agreement...." The parties agreed to first attempt an informal resolution of any dispute then, if that negotiation failed, the parties agreed to submit the dispute to binding arbitration. See SWE Agmt., Secs. 13.2 and 13.3 at p. 46. The SWE Agreement specifically sets out the arbitrator selection process and incorporates the rules and procedures of the American Arbitration Association. The presumption that the arbitrators must decide any procedural question, including the arbitrator selection process, clearly applies in this case. See Howsam , 537 U.S. at 84, 123 S.Ct. 588. The arbitrators found that the "panel is composed in a manner provided by the unambiguous agreement of the parties as set forth in Article XIII of the SWE Agreement." They also found that the parties "clearly and unmistakably empowered this panel to determine whether this arbitration involves a controversy, dispute, or claim arising under or related to the SWE Agreement ... including any dispute regarding the construction, interpretation, performance, validity or enforceability of any provision of the SWE Agreement." The arbitrators' conclusion on this issue is binding and is not for this Court to review on the basis of a procedural challenge, such as the parties agreed otherwise. See also Adam Techs. Int'l , 729 F.3d at 452 ("Adam's appellate argument that the Howsam presumption disappears because of Adam's interpretation that the parties agreed otherwise is unavailing."). AVIC USA must establish a statutory reason for vacatur related to the composition of the panel that the Court may consider in its very narrow review.

b) The Panel Did Not Exceed Their Power

The parties to an arbitration agreement may agree by contract to the arbitrator selection process. Brook v. Peak Int'l., Ltd. , 294 F.3d 668, 672 (5th Cir. 2002). When the arbitration agreement provides for the appointment method of the arbitrators, the FAA specifically requires that the agreed method "shall be followed." 9 U.S.C. § 5 ; see itation index="51" url="https://cite.case.law/citations/?q=9%20U.S.C.%20%C2%A7%205">id. at 672-73 ; see also Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ. , 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (recognizing "the FAA's primary purpose [is] ensuring that private agreements to arbitrate are enforced according to their terms" because "[a]rbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit.").

*654Claiming the arbitrators exceeded their powers, AVIC USA first contends the arbitrators were not selected in accordance with the Arbitration Provision because the Panel was "dominated by [TEG] appointees" and AVIC USA never agreed to a selection provision which would allow such a lop-sided panel in a dispute. Next, AVIC USA argues the Arbitration Provision requires a panel of three arbitrators in any scenario and asks the Court to "give effect to the plain and objectively reasonable meaning of the arbitrator selection provision for this dispute as understood by AVIC USA: one arbitrator per side plus a third arbitrator as a tie-breaker." Finally, AVIC USA contends the arbitration selection provision was misinterpreted because the Non-Signatories were not allowed to select arbitrators. As a result of these factors, AVIC USA alleges that the Court's refusal to vacate the award issued by this arbitration panel as it was composed will cause "an absurd and fundamentally unjust result."

AVIC USA attempts to characterize its arguments as being centered on an arbitration panel appointed in violation of the method provided for in the parties' arbitration agreement, therefore requiring vacatur. However, the record does not bear this out. The Arbitration Provision does indeed clearly provide for a method of selecting the arbitrators, but it is not the method alleged by AVIC USA. Presented with a similar, if not identical, argument in the AVIC USA I appeal, the Fifth Circuit so astutely noted:

Simply put, when [AVIC USA's] position is reduced to its bare essentials, AVIC [USA] is asking us to rewrite their agreement's arbitration provision to require that every arbitration among these multiple parties comprise only two "sides". It is apparent from the plain wording of that provision, however, that the agreement contemplates the possibility of there being three or more "sides" among the several parties to the agreement. More to the point, AVIC's strained interpretation of the arbitration provision would mandate that there be precisely three arbitrators in any and every instance, no more and no fewer-one selected by one "side," a second selected by the other "side," and the third selected by the first two. The unambiguous wording of the arbitration provision eschews such a reading: The agreement expressly contemplates the possibility of (1) an even number of arbitrators (an impossibility under AVIC's proposed, three-only arbitrators interpretation) and (2) adding either one or two more arbitrators to achieve an odd number (also an impossibility under a three-only arbitrator situation).

AVIC Int'l USA , 614 F. App'x. at 219 (emphasis in the original). It is readily apparent to this Court that the Fifth Circuit's summary is true and applicable even now as AVIC USA takes the same position.

As SWE Members, AVIC USA and the Movants contracted in their Arbitration Provision for a specific appointment method of the arbitrators in the event of a dispute. The FAA specifically mandates that if an appointment process is agreed-to, the agreed method "shall be followed." 9 U.S.C. § 5 ; see Brook , 294 F.3d at 672-73 ; see also Volt Info. Scis. , 489 U.S. at 479, 109 S.Ct. 1248 (recognizing "the FAA's primary purpose [is] ensuring that private agreements to arbitrate are enforced according to their terms" because "[a]rbitration under the [FAA] is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit."). The method by which these arbitrators were selected was in accordance with the exact process agreed to by the parties in their Arbitration Agreement. AVIC USA has established nothing to the contrary. The *655Panel did not exceed their powers and the Court will not vacate the arbitration award on these grounds.

2. Will Violations of Public Policy and Due Process Support Vacatur?

AVIC USA argues in the alternative that even if the Arbitration Agreement permitted this particular process, the resulting panel was "stacked" which violates public policy and requires vacatur of the award. Public policy is no longer a recognized, valid ground for vacating an arbitration award under the FAA. See Citigroup , 562 F.3d at 358. The United States Supreme Court held that grounds for vacatur are limited to those specifically set forth in Section 10 of the FAA. Hall St. Assocs., L.L.C. , 552 U.S. at 586, 128 S.Ct. 1396. A court may not vacate an arbitration award on common law grounds, such as public policy, because they are not specifically provided for in the statute. See Citigroup , 562 F.3d at 358 (any "non-statutory ground for setting aside an [arbitration] award must be abandoned and rejected."); Am. Postal Workers Union, AFL-CIO v. U.S. Postal Serv. , 3:09-CV-1084-B, 2010 WL 1962676, at *2 (N.D. Tex. May 14, 2010) (Boyle, J.)("[W]hile public policy was once recognized as a common law ground for vacating an arbitration award, in light of Hall Street and its progeny, it [is] no longer an adequate basis for vacatur."). AVIC USA cites to no case law post- Hall Street which would permit this Court to review the arbitration award on public policy grounds. This argument is outside the narrow scope of review the Court is permitted to conduct under the FAA. Accordingly, the Court will not consider the merits of this argument and will not vacate the arbitration award on this common law basis.

In a single sentence footnote, AVIC USA contends this arbitration panel violates public policy under Article V of the Convention and requires the award be vacated. The party seeking vacatur bears the burden of proving an Article V reason precludes confirmation of the award; "[a]bsent 'a convincing showing' that one of these narrow exceptions applies the arbitral award will be confirmed." In re Arbitration Between Trans Chem. Ltd. and China Nat. Machinery Import & Export Corp. , 978 F.Supp. 266, 309 (S.D. Tex. 1997) (citing Imperial Ethiopian Gov't v. Baruch-Foster Corp. , 535 F.2d 334, 336 (5th Cir. 1976) ). Although public policy may support vacatur under Article V of The Convention, AVIC USA submits no actual argument on this point, provides no citations in support, and fails to even reference which specific section of Article V applies. AVIC USA failed to meet its burden to establish vacatur is required under Article V of the Convention. See ids="1062215" index="67" url="https://cite.case.law/f2d/535/334/#p336">id.

Finally, AVIC USA claims the process of composing this Panel violates due process because it is in contravention to the objective of the selection process and the idea of a neutral panel, resulting in "the appearance that the arbitration process can be and was rigged." However, this is essentially where the argument ends. Beyond making this claim in a sentence or two, AVIC USA fails to put forth any substantive argument on this point or provide citations to case law in support. To the extent AVIC USA asserts due process as grounds for vacatur under the FAA, the argument would fail for the same reasons as public policy violations. Common law grounds are no longer valid to support vacatur under the FAA. See Citigroup , 562 F.3d at 358. AVIC USA