Superior Energy Services Columbia S.A.S. v. Premium Petroleum Services S. de R.L., No. 18-cv-7704 (S.D.N.Y. June 28, 2019) [click for opinion]
Petitioners, Houston-based suppliers to the oil and gas industry, entered into a Sales Purchase Agreement (“SPA”) with Respondents, Panama entities operating in the Colombian oil and gas industry, to acquire ITS, a company owned by Respondents. After the sale, Mr. Palacio, a Respondent, began employment with the purchaser, Superior Energy Services Columbia S.A.S. (“Superior”).
The SPA included a non-compete provision preventing Mr. Palacio from continuing to be involved with Petrodynamic, a company owned by Respondents. After learning that Mr. Palacio continued to provide services to Petrodynamic post-execution of the SPA, the parties attempted to resolve their differences amicably. When those attempts failed, Premium Petroleum Services S. de R.L. (“Premium”) filed a request for arbitration pursuant to the SPA.
The arbitral tribunal found that Mr. Palacio breached the SPA by continuing to work with Petrodynamic in violation of the non-compete provision. The tribunal awarded Superior a contractual Holdback Amount of $1.25 million and a 20% reduction in the purchase price of $5.6 million, thus awarding Superior about $4.5 million. Superior petitioned to confirm the award and Premium petitioned to vacate.
The court found that the award was subject to the New York Convention and that “there is a strong public policy in favor of international arbitration, thus rendering review of arbitral awards as very limited.” The court also stated that the party petitioning to vacate an award carries “the burden to prove that one of the seven defenses under the New York Convention applies.”
The court first addressed Respondents’ argument that the award must be vacated under Article V(1)(b) of the New York Convention because Respondents were “unable to present their case” to the tribunal. The district court reviewed the record of the arbitral proceedings and determined that Premium was “fully able to present its case.”
Second, Respondents argued that that there was manifest disregard of the law. “Manifest disregard” is not one of the seven defenses provided by the New York Convention for vacatur, but it has been recognized by the courts in the Second Circuit as an additional defense. The court analyzed this argument and determined that “the Tribunal carefully considered the terms negotiated by the Parties, determined they fairly represented the lost value resulting from the breach of the SPA, and rendered a Final Award in accordance with those terms.” Thus, there was no manifest disregard of the SPA by the tribunal.
Third, respondents argued that the award was contrary to public policy because it functioned as a punishment or penalty, rather than as damages. The public policy exception to enforcement of a foreign arbitral award is contained in Article V(2)(b) of the New York Convention. Citing Second Circuit authority, the court noted that Article V(2)(b) must be narrowly construed. Under the circumstances of this case, the court found that the damages awarded to Superior “precisely reflected the diminished value of ITS due to Mr. Palacio’s breach,” and that Respondents could point to no evidence indicating that the award operated as a penalty.
Therefore, the court denied Respondents’ petition for vacatur and confirmed the arbitral award in favor of Petitioners. Additionally, the district court granted Petitioners post-confirmation discovery pursuant to Federal Rule of Civil Procedure 69(a)(2).
A version of this post originally appeared in the September 2019 edition of Baker McKenzie’s International Litigation & Arbitration Newsletter, which is edited by David Zaslowsky and Grant Hanessian.