Tenth Circuit Affirms Refusal to Vacate Confirmation Despite Foreign Court’s Annulment of Underlying Arbitration Award

The Tenth Circuit recently affirmed a district court’s decision not to vacate a confirmation award even though the underlying arbitration award had been annulled by a Bolivian court following the confirmation. The Tenth Circuit agreed that public policy considerations, including concerns about encouraging endless litigation, rendered the district court’s decision not to vacate the confirmation as within that court’s discretion.

Compañía de Inversiones Mercantiles S.A. (CIMSA) and Grupo Cementos de Chihuahua S.A.B. de C.V. (GCC) entered into a shareholder agreement in which GCC purchased shares of a Bolivian company from CIMSA. The shareholder agreement included an arbitration clause and provided that CIMSA had a right of first refusal if GCC sought to sell its shares. CIMSA attempted to exercise that right when GCC moved to sell shares, but GCC purportedly claimed that CIMSA’s right was invalid and sold the shares to a third party. The sale triggered lengthy arbitration and court proceedings. In short, an arbitral tribunal in Bolivia awarded CIMSA approximately $34 million in damages plus $2 million in costs and fees, all subject to 6% interest. GCC moved to annul the award in Bolivia but lost. CIMSA then obtained an order from the U. S. District Court for the District of Colorado confirming the award. The Tenth Circuit affirmed that award. GCC then persuaded a different panel of the Bolivian court that had ruled against it to annul the arbitral award. With that annulment in hand, GCC moved to vacate the district court’s confirmation order. The district court denied GCC’s motion. GCC appealed that decision to the Tenth Circuit, which affirmed.

GCC initially  argued that a U. S. court cannot confirm an arbitral award that has been annulled by the primary jurisdiction. The Tenth Circuit disagreed, noting:

[W]hen a court has been asked to vacate an order confirming an arbitral award that has later been annulled, it may balance against comity considerations (1) whether the annulment is repugnant to U.S. public policy or (2) whether giving effect to the annulment would undermine U.S. public policy.

GCC nevertheless argued that the district court erred by considering in conjunction with that analysis not only whether the orders of the Bolivian court were repugnant to U.S. public policy, but “whether giving effect to those orders through vacatur of its Confirmation Judgment would offend U.S. public policy.” The Tenth Circuit disagreed, explaining that the district court properly considered whether giving effect to orders would violate public policy (and holding that it would because doing so would “encourage ‘proceedings without end’”) in addition to the question of whether the orders themselves were repugnant to U.S. public policy. The Tenth Circuit held that the district court did not abuse its discretion in concluding “that (1) giving effect to the [] Bolivian orders [annulling the arbitral award] would offend U.S. public policy and (2) GCC acted inequitably in the United States and Bolivian proceedings[:]”

The interests of the finality of judgments, respecting parties’ contractual expectations, and the U. S. policy favoring arbitral dispute resolution support the district court’s conclusion that vacatur of its Confirmation Judgment would violate U.S. public policy. These considerations correspondingly support the district court’s decision against extending comity to the [relevant] Bolivian orders.

The Tenth Circuit also rejected GCC’s arguments that the district court erred by ordering GCC to turnover property held abroad by third parties, and other challenges to turnover orders.

Compañía de Inversiones Mercantiles S.A. v. Grupo Cementos de Chihuahua S.A.B. de C.V., No. 21-1196 (10th Cir. Jan. 10, 2023)