A Miami federal court reversed its confirmation of a $188 million award against Venezuelan state-owned mining company Ferrominera Orinoco CA over a fatal service error.
In an order filed Thursday, U.S. District Judge Darrin P. Gayles wrote that, on second thought, the Venezuelan company should have been served in accordance with the Foreign Sovereign Immunities Act, not the Federal Arbitration Act, which offers “no guidance on how to serve an instrumentality of a foreign state.”
“Petitioner’s failure to serve the petition with a summons is fatal to its position,” wrote the judge, reversing his 2020 default judgment in favor of Commodities & Minerals Enterprise Ltd.
Attorneys for the British Virgin Islands-based Commodities insisted that service was correct under the Federal Arbitration Act, saying that a petition for award confirmation is more like a motion than a new action. Instead of a summons and complaint, an attorney files a petition and notice.
But in his decision Thursday, Judge Gayles explained that in the absence of guidance from the Federal Arbitration Act, “courts turn to the federal rules of civil procedure, which provides that ‘[a] foreign state or its political subdivision, agency, or instrumentality must be served in accordance’” with the FSIA, which requires a summons.
Commodities won the award in late 2018 following a contract dispute involving FMO’s iron ore transfer system.
The underlying dispute concerns contracts between FMO and Commodities. Under the first contract, FMO tasked Commodities with managing and operating an iron ore transfer station and maintaining the system by which iron ore was transported to ships for export. According to the company, FMO owed nearly $98 million in unpaid invoices and some $38 million in lost profits.
According to Commodities, the relationship “morphed away from a buyer and seller relationship to a barter system,” and then worsened amid political turmoil following Venezuelan President Hugo Chavez’s death in 2013, when FMO no longer had the capacity to run its operations. Commodities opened arbitration disputes in Miami and then New York.
A New York federal judge confirmed a $12.7 million award in November 2019, and FMO filed an appeal with the Second Circuit, which is now pending.
The day before the Miami award confirmation was reversed, FMO filed a spirited brief in the Second Circuit, denying it waived its rights to claim improper service on appeal and reiterating its position that the district court has no personal jurisdiction over the company because of this error. The company also repeated its position that the underlying contract is void, saying that Venezuelan prosecutors testified as to the “corruption underpinning” the contract with Commodities in 2018, and issued a warrant for the arrest of its chairman Tyrone Serrao, who then “evaded” criminal conviction.
Besides, FMO told the court, the validity of the Commodities contract cannot be arbitrated under that same contract’s arbitration provision.
Representatives and counsel for the parties did not comment on the case Friday.
Commodities is represented by Michael T. Moore of Moore & Co. PA, and Bruce G. Paulsen, Brian P. Maloney and Laura E. Miller of Seward & Kissel LLP.
CFO is represented by Daniel E. Vielleville of Assouline & Berlowe PA.
The case is Commodities & Minerals Enterprise Ltd. v. CVG Ferrominera Orinoco CA, case number 1:19-cv-25217, in the U.S. District Court for the Southern District of Florida.
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