12-593-cv
VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II L.P.


                          UNITED STATES COURT OF APPEALS

                                FOR THE SECOND CIRCUIT

                                       August Term, 2012

                  (Argued: December 19, 2012              Decided: June 3, 2013)

                                      Docket No. 12-593-cv



                                  VRG LINHAS AEREAS S.A.,

                                       Petitioner-Appellant,

                                               – v. –

         MATLINPATTERSON GLOBAL OPPORTUNITIES PARTNERS II L.P.,
     MATLINPATTERSON GLOBAL OPPORTUNITIES PARTNERS (CAYMAN) II L.P.,

                                       Respondents-Appellees.




   Before: CALABRESI, LYNCH, and CHIN, Circuit Judges.

          Appeal from an order and judgment of the United States District Court for the

   Southern District of New York (Cedarbaum, J.), denying Petitioner-Appellant VRG Linhas

   Aereas S.A.’s petition to confirm a Brazilian arbitral award against Repondents-Appellees

   MatlinPatterson Global Opportunities Partners II L.P. and MatlinPatterson Global

   Opportunities Partners (Cayman) II L.P. The district court decided that the parties’ dispute

   was beyond the scope of their arbitration agreement. It did so, however, without first




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asking whether the parties had agreed to an arbitration clause that clearly and unmistakably

assigns to an arbitral panel any questions about the scope of their arbitration agreement, if

any. We therefore vacate the district court’s judgment and remand for it to decide whether

the parties so agreed.

        VACATED and REMANDED for further proceedings.


                                       DONALD FRANCIS DONOVAN (Carl Micarelli,
                                       Debevoise & Plimpton LLP; Richard I. Werder, Jr.,
                                       William B. Adams, and Elizabeth M. Devaney,
                                       Quinn Emanuel Urquhart & Sullivan, LLP, on the
                                       brief), Debevoise & Plimpton LLP, New York, N.Y.,
                                       for Petitioner-Appellant.

                                       ROBERT H. SMIT (Tyler B. Robinson, Juan A.
                                       Arteaga, and Michelle Hertz, on the brief), Simpson
                                       Thacher & Bartlett LLP, New York, N.Y., for
                                       Respondents-Appellees.



CALABRESI, Circuit Judge:

        After receiving an arbitral award against Respondents-Appellees MatlinPatterson

Global Opportunities Partners II L.P. and MatlinPatterson Global Opportunities Partners

(Cayman) II L.P. (collectively “MatlinPatterson”), Petitioner-Appellant VRG Linhas Aereas

S.A. (“VRG”) filed a petition in the Southern District of New York seeking confirmation

of the award in accordance with the Convention on the Recognition and Enforcement of

Foreign Arbitral Awards (the “New York Convention”). 9 U.S.C. §§ 201-08.

MatlinPatterson argued in response, as it had in arbitration and court proceedings in

Brazil, that the Arbitral Tribunal administered by the International Court of Arbitration of

the International Chamber of Commerce (“ICC”) lacked jurisdiction over its dispute with



                                              2
VRG. The district court (Cedarbaum, J.) issued an oral ruling agreeing with

MatlinPatterson and thereafter denied VRG’s petition by handwritten endorsement.

       On appeal, VRG argues that the district court usurped the Arbitral Tribunal’s role

when it decided that the scope of the parties’ arbitration agreement—assuming there was

one—did not extend to the dispute at hand. The question of who is to decide whether a

dispute is arbitrable is one that must necessarily precede the question of whether a dispute is

arbitrable. We therefore vacate the district court’s judgment and remand so that it may

decide, in the first instance and on the particular facts of this case, who—the court or the

Arbitral Tribunal—has the power to determine the scope of the alleged arbitration

agreement between VRG and MatlinPatterson. As we describe more fully below, this

power—to determine the scope of any agreement to arbitrate—is to remain with the district

court unless the parties agreed to an arbitration clause that clearly and unmistakably

assigns such questions to arbitration.



                                      BACKGROUND

       MatlinPatterson is a private equity fund based in New York; VRG, based in São

Paulo, Brazil, is a subsidiary of Gol Linhas Aereas Inteligentes S.A. (“Gol”), a Brazilian

airline. Gol—through a subsidiary, GTI—acquired VRG in 2007 from two of

MatlinPatterson’s indirect subsidiaries, Varig Logistica S.A. and Volo do Brasil S.A. The

transaction was accomplished through a Share Purchase and Sale Agreement (“the

Agreement”), written in Portuguese, and signed on March 28, 2007 by all of the entities

just mentioned but one: MatlinPatterson.




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       Six Addenda to the Agreement were also executed, including one (Addendum 5)

that MatlinPatterson did sign, and that gives rise to the dispute before us. In Addendum 5,

a one-page document also signed by GTI and Gol, MatlinPatterson agreed not to compete

with VRG or invest in any of its competitors in the passenger airline market for a period of

three years. Addendum 5 did not mention arbitration. The parties sharply dispute,

however, whether the signatories to Addendum 5 agreed to incorporate the arbitration

provisions detailed in § 14 of the main Agreement.1 Their dispute turns in part on

divergent translations of a phrase that appears at the end of Addendum 5, describing that

document as “aditando os termos do Contrato”—that is, “amending” (VRG’s translation) or

“supplementing” (MatlinPatterson’s) the terms of the main Agreement.

       Soon after the sale of VRG, a dispute arose over an adjustment to the purchase

price. In December 2007, VRG referred the dispute to arbitration, naming

MatlinPatterson as a party. Over the latter’s objections, the three-member Arbitral Tribunal

appointed under ICC rules unanimously determined, after briefing and a two-day hearing,

that MatlinPatterson had agreed to arbitration and—though the panel divided on this

question—that its agreement to arbitrate encompassed the parties’ purchase price dispute.

Following a subsequent three-day hearing on the merits of that dispute, the Tribunal, in

September 2010, unanimously issued its award holding MatlinPatterson liable for damages

resulting from fraudulent misrepresentations it made during the sale of VRG.

MatlinPatterson has challenged the arbitral award in the Brazilian courts, so far

unsuccessfully.
       1
         Section 14 of the Agreement included provisions requiring that “disputes arising
from or related to this Agreement, including those concerning its validity, effectiveness,
breach, [and] interpretation” be submitted to the ICC International Court of Arbitration.


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        The present case arose in January 2011, when VRG filed a petition in the Southern

District of New York for confirmation of its foreign arbitral award against MatlinPatterson,

in accordance with the New York Convention, 9 U.S.C. § 207. As it had in Brazil,

MatlinPatterson argued in the district court that the Arbitral Tribunal lacked jurisdiction

over its dispute with VRG. The district court agreed, ruling from the bench that even if

MatlinPatterson had agreed to arbitrate disputes over its noncompete agreement with

VRG, it had not agreed to arbitrate what the district court described as “an entirely

different issue [arising] under an agreement that it did not sign.” VRG now appeals the

district court’s denial of its petition.



                                           DISCUSSION

        We review a district court’s legal interpretations of the New York Convention as

well as its contract interpretation de novo; findings of fact are reviewed for clear error. See

Fishoff v. Coty Inc., 

, 652 (2d Cir. 2011); Sarhank Grp. v. Oracle Corp., 

, 659 (2d Cir. 2005); Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, Inc., 

, 89 (2d Cir. 2005).

        Under the New York Convention, as implemented and codified at 9 U.S.C. § 207,

a party may petition a United States district court to confirm a foreign arbitral award that

the party received within the previous three years. The court is to confirm the award unless

it finds one of the seven grounds for refusal offered in Article V of the Convention. “Given

the strong public policy in favor of international arbitration,” the party seeking to avoid

summary confirmance of an arbitral award has the heavy burden of proving that one of the

seven defenses applies. Encyclopaedia 

.


                                                5
        Among its provided defenses, the Convention allows courts to refuse to recognize a

foreign arbitral award if “[t]he subject matter of the difference is not capable of settlement

by arbitration under the law of” the county in which enforcement is sought. New York

Convention, art. V(2)(a), June 10, 1958, 21 U.S.T. 2517. Whether a given dispute is

arbitrable—and the resulting award enforceable—is therefore a question to be decided under

United States arbitration law. So too is the logically prior question of who shall decide a

dispute’s arbitrability. See Sarhank 

.

        The Supreme Court helpfully distinguished these inquiries from each other, and

from yet a third question, in First Options of Chi., Inc. v. Kaplan, 

(1995). As

the First Options Court explained, the three questions involve: 1) the merits of the dispute;

2) whether the dispute is to be arbitrated—the so called “question of arbitrability”; and 3)

whether a court or an arbitrator is to decide the question of arbitrability. In regard to

Question Three, First Options holds that questions of arbitrability are to be sent to

arbitration if and only if the parties clearly and unmistakably expressed their intention to

do so.2 

also Howsam v. Dean Witter Reynolds, Inc., 

, 83 (2002).


        2
          We have previously noted that “‘[q]uestions of arbitrability’ is a term of art
covering disputes about [1] whether the parties are bound by a given arbitration clause as
well as disagreements about [2] whether an arbitration clause in a concededly binding
contract applies to a particular type of controversy.” Republic of Ecudaor v. Chevron Corp.,

, 393 (2d Cir. 2011) (quotation marks and alterations omitted). Both
disputes—about which parties and which types of controversy the clauses of an arbitration
agreement encompass—are ones over the arbitration agreement’s scope. “Those issues
should be decided by the courts unless there is clear and unmistakable evidence from the
arbitration agreement that the parties intended that they be decided by the arbitrator.” 

alterations omitted). The more basic issue, however, of whether the
parties agreed to arbitrate in the first place is one only a court can answer, since in the
absence of any arbitration agreement at all, “questions of arbitrability” could hardly have
been clearly and unmistakably given over to an arbitrator.


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       Of course, a court asked to confirm an arbitral award must take the three First

Options questions in reverse order, since Question Three asks who will answer Question

Two (the question of arbitrability), and Question Two in turn asks who will answer

Question One (the decision on the merits). See Alliance Bernstein Inv. Research & Mgmt., Inc.

v. Schaffran, 

, 122 (2d Cir. 2006) (describing the “issue of who will decide the

arbitrability question” as “preliminary” to the question “whether the claims must be

arbitrated”). Thus a court must begin by deciding whether the parties before it clearly and

unmistakably committed to arbitrate questions regarding the scope of their arbitration

agreement. If—but only if—the answer is no, the court must then proceed to determine on

its own whether the parties’ dispute falls within the scope of their agreement to arbitrate.

       The instant case shows how this initial question can sometimes prove

determinative, however “narrow” or “arcane” it might be. First 

,

945. Had the district court found that MatlinPatterson and VRG clearly and unmistakably

agreed to arbitrate questions of arbitrability, the district court’s work would then have been

done. Since the Arbitral Tribunal has already decided that the parties’ dispute falls within

the scope of their arbitration agreement, the district court would have had to defer to the

Arbitral Tribunal’s answer not only to that question but also, consequently, to the

Tribunal’s ruling on the merits. Barring any other defenses, the district court would have

been required to recognize and enforce the Tribunal’s award.

       On the record before us, however, it does not seem that the district court ever

asked the initial question of who is to decide the scope of the parties’ arbitration

agreement. The district court held that even if MatlinPatterson had agreed to arbitrate




                                               7
disputes over its noncompete provision—a question the court said it did not “have to get

drawn into”—the parties’ arbitration agreement surely did not extend to disputes over the

purchase price of VRG. In so holding, the district court decided the scope of an agreement

whose existence it assumed arguendo, instead of determining whether the parties actually

reached an agreement to arbitrate and, if so, whether it included a clear and unmistakable

intention to arbitrate questions concerning the agreement’s scope. By vacating and

remanding, we give the district court the opportunity to make this determination in the

first instance.

        On remand, the district court’s task should be simplified by this Court’s prior

holding in Shaw Group Inc. v. Triplefine International Corp., 

, 122 (2d Cir.

2003), in which we held that an arbitration clause subjecting disputes to the rules and

procedures of the ICC International Court of Arbitration clearly and unmistakably

commits to arbitration any questions about the arbitrability of particular disputes. Section

14 of the Agreement does exactly this. Therefore, if the district court determines that

MatlinPatterson agreed to the terms of § 14, our precedent compels the conclusion that

MatlinPatterson thereby clearly and unmistakably committed questions of scope to the

arbitrators. Because the Arbitral Tribunal has already determined that the subject matter of

this dispute falls within the scope of § 14, the district court’s finding would require it to

confirm the arbitral award.

        If, on the other hand, the district court determines that MatlinPatterson did not

agree to the terms of § 14, no further analysis would be necessary. Such a finding would

compel the denial of VRG’s petition to confirm the award on the grounds that




                                               8
MatlinPatterson never consented to submit disputes—whether about arbitrability or

anything else—to arbitration.

        In analyzing whether MatlinPatterson agreed to the terms of § 14, the district court

does not necessarily need to discern that agreement in unambiguous contract language.

“When deciding whether the parties agreed to arbitrate a certain matter (including

arbitrability), courts generally . . . should apply ordinary . . . principles that govern the

formation of contracts,” First 

, including the consideration of

extrinsic evidence to resolve ambiguities in contractual language.3 In the present case, the

district court might—we do not say will—find it necessary to consider extrinsic evidence as it

carries out its primary task on remand: determining whether MatlinPatterson agreed to be

bound by the arbitration clause in the Agreement.



                                        CONCLUSION

        Because the district court has not yet determined whether the parties in this case

agreed to an arbitration clause that clearly and unmistakably entrusted questions of

arbitrability to the Arbitral Tribunal rather than to the court, its judgment is VACATED

and the case REMANDED in order to provide the district court an opportunity to make

this determination in the first instance, and, consistent with this opinion, to conduct

whatever further proceedings may be required.




        3
         The parties are in agreement that the standard principles of contract
interpretation are no different under Brazilian law than under our own.



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