YPF S.A. v. Apache Overseas, Incorporated , 924 F.3d 815 ( 2019 )

Case: 17-20802 Document: 00514970305 Page: 1 Date Filed: 05/24/2019
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 17-20802 May 24, 2019
Lyle W. Cayce
YPF S.A.; YPF EUROPE B.V., Clerk
Plaintiffs - Appellees
v.
APACHE OVERSEAS, INCORPORATED; APACHE INTERNATIONAL
FINANCE II S.A.R.L.,
Defendants - Appellants
Appeal from the United States District Court
for the Southern District of Texas
Before HAYNES, HO, and DUNCAN, Circuit Judges.
JAMES C. HO, Circuit Judge:
When the parties to a contract agree to arbitrate, rather than litigate,
certain disputes that might later unfold, Congress directs federal courts to
honor the parties’ wishes. Under the Federal Arbitration Act, courts generally
enforce any resulting arbitration award, barring specific circumstances—such
as when the arbitrator exceeds his legal authority or otherwise jeopardizes the
fair arbitration process. See 9 U.S.C. § 10(a) (listing the conditions under
which a court may vacate an arbitration award). No such circumstance exists
here, so accordingly, we affirm.
Case: 17-20802 Document: 00514970305 Page: 2 Date Filed: 05/24/2019
No. 17-20802
I.
Apache Overseas, Inc. and Apache International Finance II S.A.R.L.
(collectively, “Apache”) agreed to sell certain assets to YPF S.A. and YPF
Europe B.V. (collectively, “YPF”). Under the governing Sale and Purchase
agreement (“SPA”), the parties agreed to accept adjustments to the sales price
under certain conditions.
In the event of any dispute concerning those price adjustments, the
parties agreed to arbitrate. The SPA designated KPMG as the “Independent
Accountant” that would reach a “Determination” as to the appropriate amount
of adjustment to the sales price. The SPA directed KPMG to “include the
reasoning supporting the determination.” The SPA further provided that, “in
the absence of agreement between the Parties,” KPMG is “entitled to
determine the procedure to be followed in undertaking the determination.”
A subsequent Engagement Letter from KPMG specifies that “[t]he
Determination will be a joint determination by Ginger Menown (Partner,
KPMG LLP) and Diego Bleger (Partner, KPMG Sociedad Civil).” Like the SPA,
the Engagement Letter directs KPMG to “include the reasoning supporting the
determination.”
In addition, the Engagement Letter provides for a five-day period, during
which either party may “call to the Independent Accountant’s attention any
patent arithmetical inaccuracy in the Determination.” Neither party may
present substantive evidence or pleading during this five-day period.
Both YPF and Apache accepted the Engagement Letter, and no one
disputes that the terms of the Engagement Letter form part of their arbitration
agreement.
Pursuant to the terms of both the SPA and the Engagement Letter,
Menown and Bleger subsequently issued a Determination and concluded that
Apache owed YPF approximately $9.8 million. Apache objected to the
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Determination within the five-day period. Apache complained that, because
KPMG did not provide any details of its calculations, Apache was unable to
determine whether there were a “patent arithmetical inaccuracy” in the
Determination, as the Engagement Letter requires for either party to contest
the Determination during the five-day review period. In response, KPMG
rejected Apache’s objection, on the ground that its objection was not based on
a patent arithmetic error. Notably, however, the response letter was signed by
KPMG partners Diego Bleger and Bryan Jones—not Ginger Menown.
Apache challenges the arbitration award on two grounds. First, Apache
objects to the manner in which KPMG conducted the five-day review process.
During that five-day period, one of the KPMG partners who had made the
original Determination—Ginger Menown—departed KPMG, and KPMG
substituted another partner in her place to complete the five-day review.
Apache challenges the validity of KPMG’s substitution. Second, Apache
complains that, by explaining its methodological reasoning but failing to spell
out its arithmetical calculations, KPMG violated the requirement that it
provide its “reasoning” in the Determination.
We agree with the district court in rejecting both challenges and
accordingly affirm the judgment confirming the arbitration award.
II.
The Federal Arbitration Act (“FAA”) governs the Engagement Letter.
Under the FAA, the court may vacate an arbitration award when “the
arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4). An arbitrator exceeds
his powers if he acts “contrary to express contractual provisions.” Beaird
Indus., Inc. v. Local 2297, Int’l Union, 404 F.3d 942, 946 (5th Cir. 2005) (citing
Delta Queen Steamboat Co. v. Dist. 2 Marine Eng’rs Beneficial Ass’n, 889 F.2d
599, 604 (5th Cir. 1989)).
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“A reviewing court examining whether arbitrators exceeded their powers
must resolve all doubts in favor of arbitration.” Rain CII Carbon, LLC v.
ConocoPhillips Co., 674 F.3d 469, 472 (5th Cir. 2012) (citing Brook v. Peak Int’l,
Ltd., 294 F.3d 668, 672 (5th Cir. 2002)). Furthermore, “[l]imitations on the
arbitrators’ scope of power must be clear and unambiguous or else they will be
construed narrowly.” Action Indus., Inc. v. U.S. Fid. & Guar. Co., 358 F.3d
337, 343 (5th Cir. 2004).
Accordingly, “[j]udicial review of an arbitration award is extraordinarily
narrow.” Antwine v. Prudential Bache Sec., Inc., 899 F.2d 410, 413 (5th Cir.
1990). We review the district court’s confirmation of an arbitrator’s award de
novo, but “our review of the arbitrator’s award itself . . . is very deferential.”
Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., 713 F.3d 797, 802 (5th
Cir. 2013) (citing Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320 (5th
Cir. 1994)). “The party defending against enforcement of the arbitral award
bears the burden of proof.” Karaha Bodas Co., L.L.C. v. Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 288 (5th Cir.
2004) (citing Imperial Ethiopian Gov’t v. Baruch-Foster Corp., 535 F.2d 334,
336 (5th Cir. 1976)).
A.
Apache first complains that the arbitration award must be set aside
because the five-day review was not conducted by Menown and Bleger.
Because “[a]rbitration is a matter of contract,” we must look to the text
of the SPA and the Engagement Letter to determine whether KPMG was
forbidden to conduct the five-day review period through partners other than
Menown and Bleger. Brook, 294 F.3d at 672 (citing AT & T Techs., Inc. v.
Commc’ns Workers of Am., 475 U.S. 643, 648 (1986)).
In a footnote, the Engagement Letter provides that the “engagement and
the Determination shall be made by Ms. Menown and Mr. Bleger.” The
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Engagement Letter never defines the term “engagement.” Apache asks us to
read the term “engagement” broadly to require Menown and Bleger to conduct
not only the Determination, but also the five-day review.
Although we acknowledge that reasonable minds can differ, we
ultimately conclude that the term “engagement” cannot bear the weight that
Apache places on it, due to other language that the parties prominently
featured in the Engagement Letter.
On the very first page of the Engagement Letter, the parties specify that
“Menown and Bleger” shall conduct the “Determination.” On the second page
of the Engagement Letter, by contrast, the parties state only that “KPMG”
shall conduct the five-day review—without specifying the names of any
particular KPMG partners. If the parties wanted to allow only Menown and
Bleger to conduct the five-day review, they presumably would have said so—
just as they did with respect to the Determination.
We “resolve all doubts in favor of arbitration” when we evaluate
“whether arbitrators exceeded their powers.” Rain CII Carbon, 674 F.3d at
472. We conclude that Apache has not met its burden to show that KPMG
exceeded its powers when it conducted the five-day review without Menown.
B.
Apache also complains that KPMG exceeded its powers because it did
not provide sufficient reasoning to explain its Determination. Specifically,
Apache contends that the agreement requires KPMG to provide not only its
methodological reasoning, but also the specific arithmetic computations that
support its Determination.
Both the SPA and the Engagement Letter require KPMG to include
“reasoning supporting the determination.” A “reasoned award” is “a somewhat
ambiguous term left undefined by the FAA.” Cat Charter, LLC v.
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Shurtenberger, 646 F.3d 836, 843 (11th Cir. 2011). Nor did the parties define
the term here.
Though we have never given a specific definition, we have held that a
“reasoned award” requires the arbitrators to submit “something short of
findings and conclusions but more than a simple result.” Sarofim v. Trust Co.
of the W., 440 F.3d 213, 215 n.1 (5th Cir. 2006) (quoting Holden v. Deloitte &
Touche LLP, 390 F. Supp. 2d 752, 780 (N.D. Ill. 2005)). The “findings and
conclusions” standard is “a relatively exacting standard familiar to the federal
courts.” Cat Charter, 646 F.3d at 844. At the other end of the continuum is
the “standard award,” which is a “mere announcement of [the arbitrator’s]
decision.” Rain CII Carbon, 674 F.3d at 474. “[C]ourts have generally been
reluctant to vacate awards challenged on the grounds that their form was
improper.” Id. at 473 (citing Cat Charter, 646 F.3d at 842 n.12). All we need
to decide is whether KPMG provided “greater [detail] than what is required in
a ‘standard award,’” that is, whether KPMG issued more than a mere
announcement. Cat Charter, 646 F.3d at 845.
Although the Engagement Letter allows either YPF or Apache to bring
an arithmetic error to KPMG’s attention within five days of the Determination,
nothing in either the SPA or the Engagement Letter requires KPMG to provide
detailed mathematical calculations as part of the Determination itself. Nor
can we justify reading an implied provision into the Engagement Letter that
requires the mathematical detail sought by Apache today. See, e.g., 23
WILLISTON ON CONTRACTS § 63:21 (4th ed. 2017) (noting that a court cannot
introduce an implied term into a contract unless, under the circumstances, “it
is absolutely necessary to introduce the term to effectuate the intention of the
parties”). “Given the deference employed when evaluating arbitral awards,”
we conclude that the Engagement Letter requires KPMG to issue a reasoned
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award, but not the heightened detail demanded by Apache. Rain CII Carbon,
674 F.3d at 474.
Applying a proper reading of the agreement, KPMG easily complies with
the requirement to provide “reasoning supporting the determination.” As
KPMG explained, it used Argentine Generally Accepted Accounting Principles
and performed the engagement pursuant to the Standards for Consulting
Services, promulgated by the American Institute of Certified Public
Accountants. KPMG also provided a chart listing the awarded amounts.
Furthermore, KPMG discussed several bases for the award, noting that:
[T]he Independent Accountant requested and obtained from
Purchasers and analyzed accounting records for the composition of
the Creditors balance as at the Locked Box Date and, through July
12, 2016, related payments made and outstanding amounts
accrued by a Target Company. Based on our analysis, we find that
the underlying accounting records confirm that Purchasers’
Locked Box Working Capital Amount claims are in fact in excess
of US$76,007,978.
...
The Independent Accountant has determined that Sellers did not
accrue all liabilities related to operating expenses, administrative
expenses, investments in fixed assets and contractual claims that
existed as of the Locked Box Date.
...
We found that Purchasers provided documentation, including
financial accounting and business records, sufficient to
substantiate that $9,006,956 of the $10,139,032 claimed amounts
have been paid or were still outstanding as at July 12, 2016, in
excess of the corresponding amounts accrued in the Creditors line
as at the Locked Box Date.
...
The Independent Accountant has determined that payments were
made to, or for the benefit of the Sellers, after the Locked Box Date,
constituting an adjustment for Leakage. We based our
determination of the amounts awarded to Purchaser on our review
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and analysis of documentation offered by Buyer to substantiate
payments that satisfied the definition of Leakage.
...
Of the total $498,271 in Purchasers’ Leakage claim, we found that
$191,687 satisfied the definition and, therefore, we awarded that
amount. We found that the remainder of the amount claimed was
for either, “payments made in respect to the ordinary course of
business” after the Lock Box Date or similar payments made prior
to the Lock Box Date and not properly classified nor accrued and,
therefore, not Leakage.
As we have held, an arbitrator issues a reasoned award when “the
arbitrator laid out the facts, described the contentions of the parties, and
decided which of the two proposals should prevail.” Rain CII Carbon, 674 F.3d
at 474. Here, KPMG noted that it based its analysis on the parties’ statements
and accounting records, pointed to its finding on the accrual of liabilities, and
explained what documentation it found relevant in evaluating the proper
refund amount. We find that KPMG issued a “reasoned award” here.
***
We affirm the district court’s confirmation of the arbitration award.
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