On April 6, 2020, the Fifth Circuit Court of Appeals confirmed Carpatsky Petroleum Corporation’s (“Carpatsky”) enforcement of a $147 million arbitration award against OJSC Ukrnafta (“Ukrnafta”). Carpatsky is represented by Philip Hilder and Stephanie McGuire, Hilder & Associates, P.C., and Robert Kry and Sara Margolis, MoloLamken. See OJSC Ukrnafta v. Carpatsky Petroleum Corporation, 19-20011 (5th Cir. April 6, 2020).
The decision in Carpatsky’s favor stems from its decades long dispute with a Ukrnafta, a Ukrainian national oil company. In 1994 Carpatsky, a Texas entity, created a Joint Activity Agreement (“JAA”) to develop Ukrainian oil prospects with Ukrnafta. The agreement, governed by Ukrainian law, provided for commercial arbitration in Kiev. Two years later, in 1996, Carpatsky merged into a new Delaware company with the same name. In 1998 Carpatsky and Ukrnafta amended their agreement which, among other things changed the arbitration venue to Stockholm. Ultimately the business relationship soured spurring litigation.
Carpatsky filed an arbitration request in Stockholm alleging Ukrnafta committed multiple breaches of the JAA. Carpatsky’s arbitration demand and other documents correctly identified its status as a Delaware entity. Nearly a decade later, Ukrnafta initiated litigation against Carpatsky in European and American courts alleging multiple theories of recovery. Ukrnafta also challenged the arbitrator’s jurisdiction because it allegedly never contracted with the Delaware entity. Ukrnafta sued Carpatsky again, this time in Texas State Court. Carpatsky successfully removed the Texas litigation to federal court because the dispute was subject to arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”). U.S.C. § 205,21 U.S.T. 2517.
The Swedish arbitration panel rejected Ukrnafta’s multifarious challenges ultimately entering a $147 million award in Carpatsky’s favor. Swedish courts also ruled against Ukrnafta’s challenges. Ultimately the District Court confirmed Carpatsky’s arbitration award and dismissed Ukrnafta’s claims.
The Fifth Circuit flatly rejected each of Ukrnafta’s challenges. First, the court determined that the district court holds jurisdiction because Carpatsky asserted a nonfrivolous conceivable connection to an arbitration agreement. Further, Carpatsky’s claims required application of federal law because of the Convention controlled arbitration agreement.
The Fifth Circuit next focused on the award’s merits, determining that the district court also holds secondary jurisdiction over the award. Ukrnafta’s made an unpersuasive argument that an amendment to the JAA was invalid because of Carpatsky’s changed domicile. The Court reasoned that Carpatsky’s new Delaware domicile was irrelevant because the president’s signature bound the entity. Regardless, Ukrnafta waived its domicile argument by twice submitting to arbitration. Arguably Ukrnafta’s agreement to Carpatsky’s arbitration demand, which noted it’s Delaware domicile, may also constitute an independent arbitration agreement. Ukrnafta’s capacity defense under Article V(1)(a) failed.