Corporation with Foreign Affiliation Brought Back to Earth in Arbitration
Soaring Wind Energy, L.L.C, v. Catic USA, Inc., 946 F.3d 742 (5th Cir. 2020).
By: Giuliani Alvarenga
In January of 2020, the Fifth Circuit denied request of an aerospace corporation for a full bench hearing with judges from the circuit. This comes after the district court awarded $62.9 million dollars in favor of the investors working along side the aerospace company.
Catic USA, the defendant, is a corporation from California with ties from investors located in China. Soaring Wing Energy, the plaintiff, is a company formed by both Catic and Tang Energy Group to create a vehicle for “wind-energy marketing and project development.”[1] Through an agreement made by the two companies (“Soaring Wind Agreement” or the “Agreement” ), each member would conduct business only through Soaring Wind and its subsidiaries. The Agreement also outlined procedures for dispute resolution via arbitration.
Soaring Wind sued because it believed the plaintiff failed to properly invest in this business project. Here, Catic improperly breached the agreement by investing $50 million dollars in a Chinese affiliate without returning fifteen percent in profits to Soaring Wind Energy.[2] As a result, “the arbitration panel issued its final award in favor of the claimants” [3] in the amount of $62.9 million dollars in lost profits. Additionally, panel ordered the divestment of Catic and its affiliates’ equity intertest. The plaintiff then sought judicial confirmation, and the district court confirmed the award against Catic. The appeal arises from this decision
Here , Catic USA and its Chinese affiliates advanced three theories: “(1) The district court erred by confirming the award without first reviewing the arbitrators' power over Catic USA's Chinese affiliates; (2) the arbitration panel was improperly constituted; and (3) the award includes speculative or punitive damages rendering it unenforceable.”[4]
The first issue has a basis in jurisdiction. Given Catic’s ties to its Chinese investor, the appeals court reviewed de novo whether the district court violated U.S. jurisprudence of international arbitration through its affirmation of the award. The court concluded that it held federal jurisdiction under the NY Convention because even though the Agreement related back to a foreign state, actions performed on foreign soil triggered breach for a domestic member.[5]
From here, the appeals court proceeded to break down Catic’s three theories. First, the defendant asserted that it lacked representation on the panel, so the award should be set aside. The court declined saying that the defendant signed an agreement that specified the actions of its affiliates, and when the affiliate chose not to attend the panel, that inaction constituted its own breach. Catic then claimed that Tang Energy Group had more of a say during the arbitration because it brought more arbitrators. It asked the court to invalidate the award because the representation was not evenly distributed. The Fifth Circuit again rejected this notion because the Agreement was a deal made between sophisticated parties. The Agreement did not favor parties; it only specified that the panel consisted of seven members. The fact that Catic was outnumbered is moot.
Finally, Catic claimed that the panel “exceeded its authority by awarding speculative and punitive damages in violation of the Agreement's written terms”[6] and the court should vacate and remand the decision because the award reflected an abuse of authority. While it was true that the panel did not have the authority to issue punitive damages, it did have the ability to grant injunctive relief. The question became whether the divestment was injunctive or punitive in nature. This court held that the divestment constituted injunctive relief because it not only compensated the parties but also achieved a just outcome. The appeals court affirmed the arbitration award in favor of Soaring Wind.
[1] Soaring Wind Energy, L.L.C. v. Catic USA Inc., 946 F.3d 742, 747 (5th Cir. 2020).
[2] Id. at 757.
[3] Id. at 749.
[4] Id. at 754.
[5] Id. at 753.
[6] Soaring Wind Energy, L.L.C. v. Catic USA Inc., 946 F.3d 742, 756 (5th Cir. 2020).
