Berkowitz v. Republic of Costa Rica ( 2018 )

UNITED STATES DISTRICT COURT
FoR THE DISTRICT oF CoLUMBIA F I L E D
BRETT BERKoWITZ, TREvoR ) JAN 23 2018
§§§§gg;;§, and AARON ) C|erk. U.S. D|str|ct & Bankruptcy
, ) Courts for the D|strict of Co|umb|a
Petitioners, §
v. j Civil Action No. 17-148
REPUBLIC OF COSTA RICA, §
Respondent. §
MEMOR:ANDUM OPINION
January _Q, 2018 [Dkt. Nos. l, 21, 22]
Petitioners, Brett Berkowitz and his sons, Trevor Berkowitz and Aaron Berl19 U.S.C. §§ 4()()1, 4011. Second, CAFTA makes clear that “[n]o claim may be
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submitted to arbitration . . . ifmore than three years have elapsed from the date on which
the claimant first acquired, or should have first acquired, knowledge of the breach alleged
. . . and knowledge that the claimant . . . has incurred loss or damage.” See id. at art.
10.18.1. The Tribunal then proceeded to assess petitioners’ claims with these limitations
periods in mind.
'1`he Tribunal first determined that the Berkowitz claimants had constructive
knowledge of the expropriation oftheir lots as ofNovember 27, 2006. lnterim Award
1111 96(_c), 265. /\s a result, the 'l`ribunal concluded that it lackedjurisdiction to hear any
of petitioners` expropriation claims under CAFTA Article 10.7 because the alleged
expropriations occurred before the effective date ofCAFTA, and because petitioners
knew about the alleged breach over three years before they sought arbitration. Id. at
1111 265-268. 'l`he Tribunal went on to conclude, however, that even if petitioners could
not pursue claims under CAFTA Article 10.7 for expropriation, they could pursue claims
under CAFTA Article 10.5 for violations of the minimum standard of treatment, provided
that the Costa Rican judgment assessing compensation for their expropriated property
was entered within the limitations period and there was evidence that the judgment was
made with “manifest arbitrariness and / or . . . blatant unfairness.” [cz'. at 11 286. Thus,
because Costa Rica entered judgments with respect to Lots 133 and 138 in 2013 and 2012,
rcspcctively, which were both prior to the commencement of arbitration but within the
limitations period, the Tribunal concluded that the Berkowitz claimants could pursue
claims under CAFTA Article 10.5 for those properties. [a’. at 11 286, Tables 10, 13.
Judgments assessing compensation for Lots B5 and 136, however, were rendered after
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Arbitration commenced, so the Tribunal sought more argument on whether it had
jurisdiction to hear Article 10.5 claims regarding those Lots. [a’. at 1111 289~95. Finally,
the Tribunal determined that it did not have jurisdiction over Lot Bl because neither
party provided evidence showing that ajudgment on compensation for that lot had ever
occurred. Ic!. at 1111 274, 288.
E. Subsequent Proceedings
Because of the “heavy factual detail of th[e] case,” after the Tribunal issued the
lnterim Award, it invited the parties to propose corrections within 30 days, as provided
for in Article 38 of the United Nations Commission on lnternational Trade Law
Arbitration Rules (“the UNCITRAL Arbitration Rules”), G.A. Res. 68/109, art. 38, U.N.
Doc. A/RES/68/109 (Dec. 16, 2013). See MacGrath Decl. Ex. D 1Dkt. #23-51 1-2.
Although the parties knew that-contrary to the Tribunal’s finding_a judgment on
compensation for Lot 131 had, in fact, occurred, they did not supplement the record with
evidence ref1ecting that fact within the 30-day period. lnstead, petitioners represented to
the Tribunal that they “ha[d] not identified any errors . . . to which they wish[ed] to draw
the 'fribunal’s attention.” Third MacGrath Decl. Ex. B [Dkt. #28-31 1.
But on January 23, 2017, the Berkowitz claimants filed their Petition in this Court,
seeking to vacate or set aside the lnterim Award. See Pet’rs’ Pet. On March 20, 2017,
while the Berkowitz claimants’ Petition was pending before this Court, the Tribunal
contacted the parties, noting that it had become aware of the Bl judgment, even though
the parties had not disclosed thejudgment within the 30-day period following the
issuance of the Award provided for by Article 38 ofthe UNCITRAL Arbitration Rules.
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See 'l`hird l\/[acGrath Decl. Ex. A 1Dkt. 1128-21 1. Importantly, the Tribunal noted that,
although it had “reached a decision on the question of its jurisdiction regarding Lot Bl in
its lnterim Award, it remain[ed] seised of the dispute between the Parties,” and was “not
fimcl'us officio.” Ia'. at 2. The Tribunal accordingly asked the parties to submit the Bl
Judgment, which Costa Rica did on April 4, 2017. See id.; Third MacGrath Decl. Ex. C
11)kt. #28-41 1-2. After reviewing the Bl Judgment, the Tribunal notified the parties that
it needed to correct the lnterim Award. [d. T he l3erkowitz claimants opposed any
correction of the lnterim Award on the ground that it contained legal and factual errors,
and they moved for a preliminary injunction in this Court to enjoin the Tribunal from
correcting the Award. See l\/lot. for Prelim. Inj. 1Dkt. #27_1. Shortly thereafter, the
13erkowitz claimants filed a notice with the Tribunal indicating their voluntary
withdrawal oftheir claims. See Fourth l\/lacGrath Decl. Ex. D 1Dkt. #29-51 1-3.
On May 30, 2017, the Tribunal issued a Corrected lnterim Award (“the Corrected
Award”) and a Procedural Order terminating the Arbitration (“the Procedural Order”).
See Fourth MacGrath Decl. Ex. A (“Corrected Award”) [Dkt. #29-21; Fourth l\/lacGrath
Decl. Ex. 13 (“Procedural Order”) [Dkt. #29-31. The Corrected Award made clear that, in
light of the 131 judgment, the Tribunal would consider arguments from petitioners
regarding whether the Tribunal has jurisdiction to hear Article 10.5 claims with respect to
that property. See Corrected Award 11 308(3), Table 9. But because the Berkowitz
claimants voluntarily withdrew their claims, the Tribunal terminated the Arbitration. See
Procedural Order 11 39. The issuance of the Corrected Award mooted petitioners’ motion
for a preliminary injunction. See Notice of Withdrawal of Mot. [Dkt. #301.
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DISCUSSION
A. Default Judgment
Before turning to the merits of this dispute, 1 must first address one procedural
hurdle that both parties have raised: whether Costa Rica defaulted by allegedly failing to
timely reply to the Petition. The Berkowitz claimants filed their Petition in this Court on
January 23, 2017, pursuant to Scction 10 ofthe FAA, 9 U.S.C. § 10. ln an attempt to
serve Costa Rica, petitioners delivered a copy of their Petition to the Washington, D.C.
office of Sidley Austin LLP (“Sidley”), which is the law firm that represented Costa Rica
in the underlying Arbitration. See Smith Aff. 1Dkt. #13-1] 1. Although Sidley currently
represents Costa Rica in this case, at the time that petitioners served Sidley, Costa Rica
had not retained the law firm to represent it. Ia’. On February 2, 2017, Sidley sent the
Berkowitz claimants a letter explaining that the firm was not authorized to accept service
on behall`of Costa Rica. See Letter, February 2, 2017 1Dkt. #22-21.
ln another attempt to effect service, petitioners delivered a copy of the Petition in
this case to the Costa Rican l\/linistry of Foreign Trade and the Embassy ofCosta Rica in
Washington, D.C on January 25, 2017. See Smith Aff. 1. Under the Hague Service
Convention, however, Costa Rica specifically designated the l\/linistry of Foreign Affairs
and Worship as the authority designated to receive foreign judicial documents. See
Broaa' v. Mannesmcmn Anlagenbau AG, 196 F.3d 1075, 1076 (9th Cir. 1999) (“The
Hague |:Service1 Convention requires plaintiffs who sue foreign defendants in signatory
countries to request that a designated central authority execute service of process.”);
(,‘().s'm Rica - (.‘emml Az//h()rily & pracl/,'cal information HAGUE CoNFERl-:NCE oN PRivATt-: INT’L
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fsz lleuiz (`c)Nvi:N'l'ic)N oN run SnvaCl-; AaRo/\D or JUDlCI/\L & Ex'rRAJUDICmL
Doc‘ulvn,~:N*rs lN Civlr & Cc)MMEIzClAL MA'rTERs, Nov. 15, 1965 (designating the Ministry of
Foreign Affairs and Worship as Costa Rica’s central authority).4 ThuS, this attempt, tOo, failed
to effect service.
After these unsuccessful attempts to serve Costa Rica, the Berkowitz claimants
moved for this Court to issue a summons to the Ministry of Foreign Affairs and Worship,
which 1 granted on February 3, 2017. See 2/3/17 Dkt. Entry. Petitioners then mailed
their Request for Service Abroad of Judicial Documents to the Ministry of Foreign
Affairs and Worship on February 22, 2017. See A'ff. ofAdditional Serv. 11 2 1Dkt. #16-
l |. Costa Rica accepted service on l\/Iarch 28, 2017. See Cert. of Serv. 1Dkt. #19-11.
The following week, the Berkowitz claimants submitted to this Court an affidavit
for default, claiming that Costa Rica had been served either on January 23, 2017 or on
January 25, 2017. See Smith Aff. 1. They further alleged that Costa Rica had defaulted by
failing to respond to the Petition within 14 days of service. [a’. at 2. Accordingly, the
Clerk of Court entered default against Costa Rica on April 6, 2017. Clerk’s Entry of
Default 1Dkt. #151. The very next day_ Costa Rica entered an appearance in this case and
informed the Court that it was not served with the Petition until March 28, 2017. See
Notice oflntent to Seek Vacatur of Default 1Dkt. #191. Costa Rica also made clear its
intention to timely submit a response to the Petition by l\/lay 30, 2017. Ia’. at 2.
()n April 20, 2017, petitioners moved for defaultjudgment against Costa Rica,
4 This authority is available at https://www.hcch.net/en/states/authorities/detailsS/?aid:l068_
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pursuant to Federal Rule ofCivil Procedure 55. See Mot. for Default J. 1Dkt. #21]. 1n
their motion, the Berl28 U.S.C. § 1608(d).
According to Costa Rica, petitioners did not serve the Republic until March 28, 2017, and
thus the 60-day period had not yet expired. See Mot. to Vacate Entry of Default 6. Both
motions are now ripe. Upon review of the motions and the accompanying documents, 1
find that Costa Rica was not properly served until March 28, 2017.
Pursuant to the FSIA, a foreign state is entitled to 60 days after the completion of
proper service to respond to a petition filed in U.S. court. See 28 U.S.C. § 1608(d) (“1A]
foreign state . . . shall . . . respon[d] . . . within sixty days after service has been made
under this scction.”); see also Keegel v. Key West & Cczribbean Traa’l`ng Co., Inc., 627
F.2d 373, 374 (D.C. Cir. 1980) (“No obligation to [respond] ar[ises] until after service
[is] effected.”). The relevant issue, then, is when petitioners properly effected service
upon Costa Rica.
The Berkowitz claimants argue that they were not required to comply with the
FSIA because they properly served Costa Rica pursuant to Section 12 of the FAA. Mot.
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for l)el`ault .1. 9. But the Supremc Court has made clear that the “FSIA provides the sole
basis for obtaining jurisdiction over a foreign state in federal court.” Argentz`rze Republic
v. Ameraa’a Hess Shz`pping Corp., 488 U.S. 428, 439 (1989). And “1S1ection 1608(a) 1of
the FSIA] sets forth the exclusive procedures for service” on a foreign state. Tmrzsaero,
[nc. v. La Fuerza Aerea Boll`lvl`ana, 30 F.3d 148, 154 (D.C. Cir. 1994) (internal quotation
marks omitted). Thus, service on Sidley and the Costa Rican Embassy pursuant to the
FAA did not qualify as effective service for the purposes of calculating the 60-day
limitations period. See [d. at 153-54 (holding that service was ineffective where plaintiff
served a foreign statc’s °‘Alnbassador and Consul General in Washington, and . . . First
l\/linister . . . but never the l\/finistry of Foreign Affairs or the Secretary of State”).
Alternatively, the Berl2016 WL
2894857, at *4 (D.D.C. May 18, 2016). The plain text of Annex G makes clear that it
does not apply to all attempts to serve Costa Rica in any matter; instead, it is limited to
communications made pursuant to the dispute settlement section of Chapter 10 of
CAFTA. As relevant here, Annex G expressly provides that “[n]otices and other
documents in disputes under [Chapter 101 Section B shall be served on” the Foreign
'1`rade l\/linistry. See CAFTA, Ch. 10, § 13, Annex G. And section 13 of Chapter 10 sets
forth the dispute settlement provisions for investor-state arbitrations under CAFTA. See
la’., Ch. 10, § 13. As such, Annex G plainly is not an “all encompassing” provision that
governs all communications between a claimant and a CAFTA member state. lnstead,
Annex G covers communications between a claimant and a CAFTA member state
regarding arbitration disputes under the treaty. Annex G does not apply to the service of
judicial documents in subsequent vacatur proceedings in United States domestic courts.
See, e.g., Orange Ml`a’a’le E. 2016 WL 2894857, at *5 (“[T]he Agreement provided for
dispute resolution through . . . binding arbitration[, which was] the outer limit of the
1Agreement’s1 reach. A Petition to 1confirm1 the ensuing arbitral award is another
matterione that must . . . conform to FSIA’s prerequisites to jurisdiction in this Court.”).
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li`or these reasons, 1 find that petitioners" attempt to serve Costa Rica pursuant to
Annex G was ineffective, and thus Costa Rica was not properly served until March 28,
2017. As such, Costa Rica’s response to the 13erkowitz claimants’ Petition in this case
was timely filed, and Costa Rica is accordingly not in default. 1 therefore vacate the
Clerk’s entry of default and proceed to the substance of the Petition.
B. Petition to Vacate the lnterim Award
The Berkowitz claimants ask this Court to set aside the Tribunal’s lnterim Award
pursuant to Section 10 of the FAA, 9 U.S.C. § 10, on the ground that the Award exceeded
the authority granted to the '1`ribunal by the parties. Pet’rs’ Pet. 1. Costa Rica counters
that this Court does not have jurisdiction to review the lnterim Award because it was not
final. Resp’t’s ()pp’n 14. For the following reasons, 1 find that Costa Rica is correct.
1n general, it is improper for a district court to interfere with an international
arbitration proceeding before the tribunal issues a final ruling. See A)n. Posl'al Wor/cers
Union v. U.S. Postal Serv., 422 F. Supp. 2d 240, 246 (D.D.C. 2006) (“10]rdinarily, an
arbitration award must be final and binding before a district court may vacate or enforce
it.”). Indeed, “1t_1he Arbitration Act contemplates that courts should not interfere with
arbitrations by making interlocutory rulings.” LaPraa’e v. Kz`cla’er Peabocly & C0., Inc.,
146 F.3d 899, 903 (D.C. Cir. 1998). And our Circuit has held that “it is a cardinal
principle of arbitration that 1arbitration1 awards are reviewable and enforceable only if
they are ‘final’--that is, if they purport to resolve all aspects ofthe dispute being
arbitrated.” A/n. Fea”n ofGov ’l E/nps., AFL-CIO, Local 3090 v. Fea’. Labor Relatl`ons
Azlth., 777 F.2d 751, 755 (D.C. Cir. 1985) (citing Mz`chaels v. Mar[forum Shl`ppz`ng, S.A.,
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624 F.2d 411, 413-14 (2d Cir. 1980)). Other Circuits to address the issue have similarly
held that the Federal Arbitration Act precludes the interlocutory review of arbitration
decisions See, e.g., Mz`cliaels, 624 F.2d at 414 (“Under the 1FAA1 . . . a district court
does not have the power to review an interlocutory ruling by an arbitration panel.”);
Sclzal'l v. Avenlura Liln()usine & Transp. Serv., Inc., 603 Fed. App’x 881, 887 (1lth Cir.
2015) (“[T:|he FAA allows review of final arbitral awards only, but not of interim or
partial rulings.”); Qul`xlar, lnc. v. Braa’y, 328 Fed. App’x 317, 320 (6th Cir. 2009)
(“1C10urts generally should not entertain interlocutory appeals from ongoing arbitration
proceedings.”); Blue Cr()ss Blue Shlelcl ofMass, Inc. v. BCS Ins. CO., 671 F.3d 635, 638
(7th Cir. 201 1) (“1J1udges must not intervene in pending arbitrations.”). The question 1
must decide, then, is whether the lnterim Award was final, and thus reviewable
Under the “complete arbitration rule,” for an arbitration to be final, “the arbitrators
must have decided not only the issue of` liability ofa party on the claim, but also the issue
of damages.” United Transp. Union v. Tral`lways, lnc., No. 86-CV-1502, 1987 WL 8730,
at *l (D.D.C. l\/[ar. 12, 1987). lndeed, “1t1he courts seem to agree that, when ‘a
substantive task remain1s1 for the arbitrator to perform,’ an award is not final.” A/n.
Postal Worke/”s Union, 422 F. Supp. 3d at 246 (quoting McKz`nney Restoralz'On CO. v. [ll.
Dist. Councll No. ], 392 F.3d 867, 871 (7th Cir. 2004)). lmportantly, the Tribunal’s
subjective beliefs about the finality of its award is a key factor in determining whether the
award was, in fact, final. See A/n. Poslal Workers Unz'on, 422 F. Supp. 2d at 246 (noting
that an award will be considered final when it is “‘intended by the arbitrator to be his
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complete determination of every issue submitted to him (quoting McKl`nney Restoral'ion
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C()., 392 1"`.3d at 871)). rl`hus, 1 must assess whether the evidence demonstrates that the
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fl`ribunal believed its assignment 1was1 completed.”’ ]a’. (quoting MeKinney
Restoralion, 392 F.3d at 872). Unfortunately for the l3erkowitz claimants, the evidence
in this case makes clear that the Tribunal did not so believe.
lndeed, by letter dated March 20, 2017_after the Berkowitz claimants’ Petition
had already been filed in this Court_the Tribunal noted that “1although1 1it1 reached a
decision on the question ofits jurisdiction regarding Lot Bl in its lnterim Award, it
remains seised of the dispute between the Parties. lt is notfunctas Q}j?clo.” Letter, l\/lar.
20, 2017. fn that same letter, the Tribunal requested that the parties submit “documents”
concerning the Tribunal’s jurisdiction over Lot 131. Iol. This request for documents
evidences the Tribunal’s belief that there were still “substantive task[s]” remaining for it
to perform. See Am. Postal Workers Union, 422 F. Supp. 3d at 246. Similarly, in the
Tribunal’s letter dated April 17, 2017, the Tribunal again noted that it “considers that it is
notfanctus ojj“z`cz'O, being still seised of the dispute between the Parties.” Letter, Apr. 17,
2017 1Dkt. #28-41. And in the Procedural Order, the Tribunal stated:
Although the Tribunal reached a decision on the question of its jurisdiction
regarding Lot 131, it is notfunclus Q]Wclo and remains seised of the matter.
The decision of the Tribunal was expressly designated to be an “interim”
award, not a “final” award. That lnterim Award contemplated further
proceedings involving all Claimants, including both the Berkowitz
Claimants and Respondent. All parties thus remained subject to the arbitral
jurisdiction of the "1`ribunal even after the lnterim Award issued.
Procedural ()rder 11 35.
'l`his order makes clear that the Tribunal considered itself to be “seised” ofthe dispute,
which is not surprising, given that the lnterim Award merely resolved some jurisdictional
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issues, while expressly contemplating the Tribunal’s intent to review additional evidence
and assess the merits ofthe dispute at a later time.5 See lnterim Award 11 308.
Petitioners concede that the “lnterim Award is not the ultimate, conclusive arbitral
award on all claims submitted to arbitration,” but they argue that the lnterim Award was
sufficiently final for this Court’s review because it resolved claims as to Lots 131 and B8
and “inost claims as to Lots 133, 135, and 136.” Pet’rs’ Pet. 11 42. But petitioners
mischaracterize the nature of the lnterim Award. ln that Award, the Tribunal ruled that
(l) it lacked jurisdiction to hear any claims with respect to Lot 131; (2) it hadjurisdiction
to hear claims relating to Lots 133 and 138 to the extent that petitioners alleged
arbitrariness or unfairness under CAFTA Article 10.5; and (3) “the Parties should be
afforded an opportunity to be heard” on whether the Tribunal has jurisdiction over
judgments respecting Lots 135 and 136 that were rendered after June 10, 2013. lnterim
Award 11 308. The lnterim Award also expressly contemplates “consultation with the
Parties” regarding “further proceedings” to allow the 'fribunal to decide these remaining
issues. la’. 1mportantly, the lnterim Award included no final rulings as to liability or
5 ln its Procedural Order, the Tribunal noted that the Berkowitz claimants decided “to withdraw their remaining
claims,’7 so it accordingly “ordcr[ed] the termination ofthe proceeding with respect to the Berkowitz Claimants and
their remaining Lots 131, 133, 135, B6, and 138.” Procedural Order1146. Petitioners argue that the Tribunal’s
“termination ofthe arbitration proceedings weighs strongly in favor ofreviewing the lnterim Award in this Court.”
Reply in Supp. of Pet’rs’ Pet. 1Dkt. #31] 6. Petitioners take the position that the Tribunal’s termination of
proceedingsiupon their request*rendered the lnterim Award final. /a'. But the fact that petitioners voluntarily
withdrew their claims before the 'l`ribunal-~after filing their Petition for vacatur in this Courtidoes not transform
the lnterim Award into a final decision.
This is especially true in light of the fact that the Corrected Award did not resolve any ofthejurisdictional
or merits issues still pending before the Tribuna| at the time of petitioners’ withdrawal oftheir claims. ln fact, the
only substantive change the Tribunal made in the Corrected Award was its finding that it might havejurisdiction to
hear claims related to liot 131. ln this way, the Corrected Award rendered the lnterim Award less final than it Was at
the time Of Petitioners’ filing for vacatur in this Court. At bottom, petitioners’ argument on this point is nothing
more than an attempt to evade the Tribunal’s jurisdiction, and l find that it is unavailing
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¢¢'
damages, but instead principally addressed questions of the Tribunal’s jurisdiction and
the justiciability of the Claimants’ case under the CAFTA.” Ia’. at 11 300. This language
regarding “further proceedings” makes unequivocally clear the Tribunal’s intent to
adjudicate the merits of the parties’ dispute upon its consideration of additional argument
Therefore, because the evidence clearly demonstrates that the Tribunal did not
believe that its “assignment [was] completed,” McKz'nney Restoration, 392 F.3d at 872, 1
find that the lnterim Award was not a final, appealable judgment.
CONCLUSION
For the foregoing reasons, the Berkowitz claimants’ Petition to Vacate the lnterim
Arbitration Award is DENIED, and petitioners’ case is DISMISSED with prejudice A
separate Order consistent with this decision accompanies this Memorandum Opinion.
ilwaf…
RICHARDLJ./LEON
United States District Judge
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