CBF Industria de Gusa S/A, et al. v. AMCI Holdings, Inc., et al.

At a glance

Parties

CBF Indústria de Gusa S/A, Da Terra Siderúrgica Ltda, Fergumar – Ferro Gusa do Maranhão Ltda, Ferguminas Siderúrgica Ltda, Gusa Nordeste S/A, Sidepar – Siderúrgica do Pará S/A and Siderúrgica União S/A (Brazil) v. AMCI Holdings, Inc., American Metals & Coal International, Inc., K-M Investment Corporation, Prime Carbon GmbH, Primetrade, Inc., Hans Mende and Fritz Kundrun

Case no.

U.S. District Court, S.D.N.Y., No. 13-cv-2581 (RWS), later (PKC) (JLC); Second Circuit Nos. 15-1133-cv(L), 15-1146-cv(CON)

Forum and rules

Enforcement action under the New York Convention and Chapter 2 of the Federal Arbitration Act (9 U.S.C. § 201 et seq.), with New York state-law fraud claims

Court

U.S. District Court for the Southern District of New York (Judge Robert W. Sweet; then Judge P. Kevin Castel and Magistrate Judge James L. Cott); U.S. Court of Appeals for the Second Circuit (Judges Kearse, Pooler and Sack)

Underlying award(s)

ICC award rendered in Paris on 9 November 2011 against Steel Base Trade AG (SBT)

Treaty

New York Convention 1958 (contract arbitration clause providing for ICC arbitration)

Sector

Pig iron; metals trading

Outcome

The district court dismissed the enforcement action in 2014. The Second Circuit vacated that dismissal in 2017 and held that a foreign award does not need to be confirmed before it is enforced. On remand the court denied dismissal of the alter-ego enforcement claim (2018), applied the crime-fraud exception in discovery (2019) and held that the Third Amended Complaint relates back (2020). The published documents do not show a final judgment.

Amount

Award: USD 48,053,462.16 plus interest, and USD 360,000 in arbitration costs and legal fees. The plaintiffs seek to enforce it against the defendants as alter egos and successors of SBT.

The dispute

Seven Brazilian pig iron producers made ten contracts in 2008 to sell 103,500 metric tons of pig iron, for more than USD 76 million, to Steel Base Trade AG (SBT), a Swiss company. SBT was owned through AMCI International GmbH, which Hans Mende and Fritz Kundrun controlled. SBT stopped buying when prices fell in 2008. The producers began ICC arbitration in Paris on 16 November 2009. While that arbitration was pending, SBT signed a Transfer Agreement on 27 December 2009. Under it, SBT moved about USD 126 million in assets, including its U.S. subsidiary Primetrade, and about USD 130 million in liabilities to Prime Carbon GmbH for USD 1. It left behind its liability to the producers. SBT then went bankrupt in Switzerland, its bankruptcy administrator admitted the claims, and the ICC rendered an award of USD 48,053,462.16 plus interest. In New York, the producers sought to enforce the award against the AMCI companies, Prime Carbon, Mende and Kundrun as SBT's alter egos and successors, and also sued for fraud and fraudulent transfer. The defendants argued that: the award first had to be confirmed; the fraud claims were precluded because the ICC had rejected the fraud allegations; Article V defences applied (incapacity, inability to present the case, public policy); the plaintiffs lacked standing; forum non conveniens and international comity barred the suit; and the amended claims were time-barred.

Key holdings

1. The 2014 district court decision dismissed the enforcement claim. Relying on Orion Shipping, it held that an alter-ego enforcement action on an unconfirmed award was not permitted and could proceed only after the award was confirmed in Switzerland or another competent court. It also dismissed the fraud claims because they sought a remedy the plaintiffs had already sought in the ICC arbitration. Leave to replead was granted. 2014 Opinion, pp. 37–41
2. The Second Circuit reversed on this point. The New York Convention and Chapter 2 of the FAA provide a single-step process: "confirm" in 9 U.S.C. § 207 means recognition and enforcement. The holder of a foreign award therefore need not confirm it before seeking enforcement. Orion Shipping, a pre-Convention decision, does not apply to foreign awards. Second Circuit Opinion, pp. 39–42
3. Under Article III of the Convention, whether an award can be enforced against a non-party on an alter-ego theory is governed by the law of the enforcing jurisdiction. Enforcement may be refused only on the Article V grounds, and the party resisting enforcement bears the burden of proving them. Second Circuit Opinion, pp. 43–46
4. Issue preclusion is an equitable doctrine. Because the plaintiffs plausibly alleged that the defendants committed fraud and misconduct before the ICC tribunal, the fraud claims could not be dismissed before discovery. The appeal in the separate confirmation action was dismissed as moot. The court declined to affirm on forum non conveniens or international comity grounds. Second Circuit Opinion, pp. 48–54
5. On remand, the court held that the amended complaint adequately pleaded the grounds for piercing SBT's corporate veil. It pointed to: the USD 1 transfer, which was not at arm's length; overlapping ownership and directors; undercapitalisation; a shared address; and an alleged effort to make SBT judgment-proof. The Article V defences failed. Incapacity under Article V(1)(a) concerns the time the agreement was made. SBT had notice and an opportunity to be heard, so Article V(1)(b) was not met. Public policy under Article V(2)(b) was not shown. The standing argument and the argument that the veil-piercing issue had to be arbitrated are not Article V grounds. 2018 Opinion, pp. 17–38
6. In the discovery ruling, the magistrate judge found probable cause that the defendants committed fraud. The evidence included the 25 January 2010 letter to the ICC stating that SBT had not resolved to be dissolved, and internal emails describing the transfer as a way to keep assets out of reach of the Brazilian claims. The court held that communications with counsel had furthered the fraud and ordered production of privileged documents under the crime-fraud exception. It also ordered production of bank records and of documents held by certain third-party providers. 2019 Opinion and Order, pp. 47–56
7. The fraudulent-transfer claim under N.Y. Debtor and Creditor Law § 276, as extended to all defendants in the Third Amended Complaint, relates back to the original complaint under Rule 15(c). It is therefore not time-barred under CPLR 213(8). The partial motion to dismiss was denied. 2020 Opinion and Order, pp. 5–6

Procedural history

1. 16 November 2009The producers file a Request for Arbitration against SBT with the ICC in Paris.
2. 27 December 2009SBT signs the Transfer Agreement with Prime Carbon; both boards approve it on 27 January 2010.
3. April 2010SBT files for bankruptcy in the Canton of Zug, Switzerland. On 29 March 2011 its bankruptcy administrator admits the claims.
4. 9 November 2011The ICC award is rendered in favour of the producers for USD 48,053,462.16 plus interest and USD 360,000 in costs.
5. 18 April 2013The enforcement action is filed in the S.D.N.Y.
6. 9 April 2014The district court dismisses the complaint with leave to replead. The producers file a separate confirmation action on 29 April 2014.
7. 16 March 2015The district court dismisses the amended enforcement action. It also dismisses the confirmation action because SBT, deleted from the Swiss Commercial Register, lacks capacity to be sued.
8. 2 March 2017The Second Circuit grants rehearing, issues an amended opinion, vacates the dismissal of the enforcement action and remands. The appeal in the confirmation action is dismissed as moot.
9. 15 June 2018On remand, the district court denies the defendants' motion to dismiss. Certiorari had been denied on 11 December 2017.
10. 15 July 2019Magistrate Judge Cott rules on the discovery motions and applies the crime-fraud exception.
11. 6 April 2020Judge Castel denies the partial motion to dismiss the Third Amended Complaint.

Tribunal, counsel and experts

Decided by

• Robert W. Sweet Judge, U.S. District Court, Southern District of New York
• James L. Cott Judge, U.S. District Court, Southern District of New York (Magistrate Judge)
• P. Kevin Castel Judge, U.S. District Court, Southern District of New York (case reassigned after Judge Sweet's death in March 2019)

For the claimant

Norton Rose Fulbright · Polsinelli PC · Day Pittney LLP

For the respondent

Buchanan Ingersoll & Rooney, P.C.

For other participants

U.S. Attorney's Office for the Southern District of New York; U.S. Department of Justice; U.S. Department of State · The Association of the Bar of the City of New York

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Keywords

• New York Convention
• enforcement of foreign arbitral award
• alter ego
• veil piercing
• successor liability
• confirmation
• secondary jurisdiction
• Orion Shipping
• Article V defences
• issue preclusion
• fraudulent transfer
• crime-fraud exception
• relation back
• ICC arbitration
• pig iron
• Steel Base Trade
• Prime Carbon
• AMCI

Summary generated with AI from the published documents — refer to the award for the authoritative text.