In VRG Linhas Aéreas S.A. v. MatlinPatterson Global Opportunities Partners II L.P., No. 11 Civ. 0198 (S.D.N.Y. Oct. 2, 2014), the U.S. District Court for the Southern District of New York denied a motion to confirm a Brazilian arbitration award against a non-signatory to the arbitration agreement.
Case Background
In 2007, Gol Linhas Aéreas Inteligentes S.A., a Brazilian airline, acquired VRG from two indirect subsidiaries of MatlinPatterson, a New York-based private equity firm. The share purchase and sale agreement (the “Agreement”) contained an arbitration clause. MatlinPatterson was not a party to the Agreement, but it did sign Addendum 5 to the Agreement, which contained a non-compete clause amending the non-compete provision of the Agreement.
When the parties could not reach an agreement to adjust the purchase price after the sale was concluded, VRG initiated an arbitration against MatlinPatterson under the rules of the International Chamber of Commerce. Although MatlinPatterson had not signed the Agreement containing the arbitration clause, the arbitrators concluded that Addendum 5 was an integral part of the Agreement and that, therefore, MatlinPatterson had agreed to the arbitration clause in the Agreement. They noted that Addendum 5 referred to the Agreement in its subject line and used terms defined in the Agreement without redefining them. The tribunal ultimately held MatlinPatterson liable for damages resulting from fraudulent misrepresentations it made during the sale of VRG.
VRG filed a petition seeking confirmation of the award in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). The United States District Court for the Southern District of New York refused to enforce the award, finding that MatlinPatterson had not agreed to arbitrate disputes over the purchase price, which arose from an agreement it did not sign.
Analysis
The Second Circuit remanded for the court to determine whether the issue of arbitrability had been entrusted to the arbitral tribunal. On remand, the district court explained that Addendum 5 contained only the non-compete clause and referred only to the non-compete provision of the Agreement, not the Agreement in its entirety. Consequently, MatlinPatterson never consented to the arbitration clause contained in the Agreement.
Thus, the district court concluded that MatlinPatterson never delegated to the arbitrators the power to decide their own jurisdiction regarding claims against MatlinPatterson, and again denied the motion to confirm the award.
