Fifth Circuit Affirms Order Stating Question of Arbitrability Was Delegated to the Arbitrator in $1.6 Billion Oil Lease Dispute

The nation’s Fifth Circuit Court of Appeals has upheld a federal district court’s order stating a $1.6 billion fraud lawsuit must be arbitrated.  In Brittania-U Nigeria, Ltd. v. Chevron USA Inc., et al., No.16-20690 (5^th Cir., August 9, 2017), a Nigerian oil company, Brittania-U, signed a confidentiality agreement with Chevron as part of the bidding process related to the purchase of several oil leases.  The confidentiality agreement contained an arbitration provision which stated any disputes between the parties would be resolved through binding arbitration in accordance with the United Nations Commission on International Trade Law Arbitration Rules.  The arbitral provision also stated an arbitrator would decide any questions regarding validity and jurisdiction.

Brittania-U was not awarded any of the oil mining leases despite that the company submitted the highest bid.  As a result, the Nigerian business filed a fraud lawsuit against Chevron and two of the company’s agents in a Texas state court.  California-based Chevron successfully sought removal to the Southern District of Texas based on both diversity and federal question jurisdiction.  Next, Brittania-U filed a motion to remand the case back to state court.  In addition, Chevron and the company’s agents filed a motion to dismiss the case.  The Southern District of Texas ultimately declined to remand the dispute back to state court and instead dismissed the lawsuit in favor of arbitration based on the terms of the confidentiality agreement that was executed by Chevron and Brittania-U.

On appeal to the Fifth Circuit, Brittania-U unsuccessfully argued removal of the case to federal court was improper.  After that, the appellate court was not persuaded by Brittania-U’s claim that “the district court erred in dismissing the case after concluding that the arbitration provision delegated ‘gateway issues,’ such as ‘the validity and enforcement’ of the arbitration provision.”  The court stated:

Here, the arbitration provision’s adoption of the United Nations Commission on International Trade Law (“UNCITRAL”) Arbitration Rules clearly and unmistakably delegates arbitrability. The arbitration provision specifically states that “[t]he arbitration shall be conducted in accordance with [UNCITRAL] Arbitration Rules.”

In Petrofrac, 687 F.3d at 675, we concluded that incorporating rules from the American Arbitration Association (“AAA”) clearly and unmistakably expressed the parties’ intent to leave the question of arbitrability to an arbitrator. The AAA Rules at issue in Petrofrac stated that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” Id. (alteration in original). In coming to its holding, “[w]e agree[d] with most of our sister circuits.” Id.

Three of our sister circuits have held that the language from the UNCITRAL Arbitration Rules also clearly and unmistakably delegates arbitrability. See Chevron Corp. v. Ecuador, 795 F.3d 200, 207-08 (D.C. Cir. 2015), cert. denied, 136 S. Ct. 2410 (2016); Oracle Am., Inc. v. Myriad Group A.G., 724 F.3d 1069, 1073 (9th Cir. 2013); Schneider v. Kingdom of Thailand, 688 F.3d 68, 73-74 (2d Cir. 2012). Although the UNCITRAL Rules do not delegate arbitrability as obviously as the AAA Rules in that they do not mention explicitly the arbitrator’s ability to determine the scope or validity of the arbitration agreement, we nevertheless agree with the other circuits’ conclusions that incorporation of the UNCITRAL Rules clearly and unmistakably delegates arbitrability by granting the arbitrators authority to decide their own jurisdiction. See Oracle Am., 724 F.3d at 1073 (“By giving the arbitral tribunal the authority to decide its own jurisdiction, . . . the . . . UNCITRAL rules vest the arbitrator with the apparent authority to decide questions of arbitrability.”). The district court therefore did not err in dismissing this dispute so that it may be arbitrated.

The Court of Appeals then ruled the arbitration agreement also applied to Chevron’s non-signatory agents:

Like in Contec, the Defendants here—a signatory and two nonsignatories—are attempting to enforce the arbitration provision against signatory Brittania-U. Although the confidentiality agreement does not explicitly state that it binds nonsignatories to the agreement, it does explicitly bind Brittania-U. Therefore, as in Contec, the language of the agreement clearly and unmistakably delegates arbitrability, even with regard to Brittania-U’s dispute with Moshiri and Attia.

Accordingly, the district court did not err in recognizing that the confidentiality agreement’s arbitration provision delegated the question of arbitrability to the arbitrators.

Finally, the United States Court of Appeals for the Fifth Circuit affirmed the lower court’s order dismissing the fraud lawsuit in favor of arbitration.

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