Ecopetrol S.A. et al v. Offshore Exploration and Production, LLC
Filing
116
OPINION AND ORDER. The Court has considered all of the arguments raised by the parties. To the extent not specifically addressed above, they are either moot or without merit. For the foregoing reasons, Ecopetrol's motion, by order to show cause, to hold Offshore and Kallop in contempt is denied. The Clerk is directed to close all pending motions in this case. (Signed by Judge John G. Koeltl on 3/28/2016) (rjm)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
ECOPETROL S.A., and KOREA NATIONAL
OIL CORPORATION,
Petitioners,
14-CV-529 (JGK)
OPINION & ORDER
- against –
OFFSHORE EXPLORATION AND PRODUCTION
LLC,
Respondent.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
With an unsatisfied judgment against Respondent Offshore
Exploration and Production, LLC (“Offshore”), Petitioner
Ecopetrol S.A. (“Ecopetrol”) moves, by order to show cause, for
an order of contempt against Offshore and William M. Kallop,
Offshore’s principal. For the following reasons, the motion is
denied.
I.
The Court has already set forth the facts and the
procedural background of this case in its prior opinions, see
Ecopetrol S.A. v. Offshore Expl. & Prod. LLC, 46 F. Supp. 3d 327
(S.D.N.Y. 2014); Offshore Exploration & Prod. LLC v. Morgan
Stanley Private Bank, N.A., 986 F. Supp. 2d 308 (S.D.N.Y. 2013),
familiarity with which is assumed. The following facts are
included because of their relevance to this motion.
1
In 2009, Ecopetrol and Korea National Oil Corporation
(“KNOC,” collectively the “purchasers”) purchased Offshore
International Group, Inc. and its subsidiaries from Offshore.
One of those subsidiaries, Savia Peru S.A. (“Savia”), was then
facing Peruvian Value Added Tax (“VAT”) assessments of around
$75,000,000. Offshore, 46 F. Supp. 3d at 332, 335. The
purchasers, through Savia, paid that amount to the Peruvian
Government.
The purchasers then sought in arbitration reimbursement
from Offshore for the VAT assessments that Savia had paid. On
April 16, 2013, the arbitrators issued an “Interim Award” in the
purchasers’ favor, ordering Offshore to reimburse the Ecopetrol
parties for the tax assessment by May 28, 2013. (Ware Aff. Ex.
C, Ex. D.) On December 1, 2013, the arbitrators issued a
“Supplemental Interim Award,” which required Offshore to make
the reimbursement to the purchasers from its own funds, rather
than from an escrow account (the “financial escrow account”)
that had been created as security for indemnification claims by
the purchasers against Offshore. (Ware Aff. Ex. D.) As of
January, 31, 2016, the amount remaining in the financial escrow
account was $102,359,191.02. (Pet’r’s Letter, ECF No. 111-5.)
The purchasers maintain that they have substantial claims
against Offshore in excess of the amount of that escrow account.
2
On September 10, 2014, this Court confirmed the Interim
Award and the Supplemental Interim Award. See Offshore, 46 F.
Supp. 3d at 346. A Judgment (the “Judgment”) confirming the
awards was entered on September 12, 2014. (ECF No. 35.) The
Second Circuit Court of Appeals subsequently affirmed the
Judgment. Offshore Expl. & Prod., LLC v. Morgan Stanley Private
Bank, N.A., 626 F. App’x 303, 308 (2d Cir. 2015) (summary
order).
On May 15, 2015, about eight months after the Judgment was
entered, Offshore received from Ecopetrol (1) a demand letter
requesting one half of the Supplemental Interim Award. (Orta
Decl. Ex. 1), (2) post-judgment interrogatories, (id. Ex. 10),
and (3) a request for documents in aid of judgment and
execution, (id. Ex. 11.) On May 29, 2015, Ecopetrol moved, by
order to show cause, for the Court to hold Offshore and Kallop
in civil contempt for their failure to comply with this Court’s
Judgment, entered in September, 2014.
Also on May 29, 2015, an arbitration panel issued a Partial
Final Award that denied the purchasers’ last remaining claim
against Offshore concerning undisclosed environmental losses.
(Orta Decl. Ex. 4 at 96-97.) Pursuant to the First Amendment to
the Stock Purchase Agreement among Ecopetrol, Offshore, and
KNOC, Offshore had deposited $50,000,000 in a second escrow
account (the “supplemental escrow account”) to be applied to
3
claims that resulted from undisclosed environmental losses.
(Orta Decl. Ex. 5.)
In the same Partial Final Award, the arbitration panel
required the purchasers to return to Offshore the reimbursements
from the Peruvian Government for part of the VAT assessments.
(Orta Decl. Ex. 4 at 95-96, ECF No. 60) As of February 26, 2016,
the purchasers had received approximately $31 million in VAT
reimbursements. (Resp’t’s Letter, ECF No. 110-8.) In addition,
in August 2015, the purchasers accepted a payment of
approximately $23 million from the supplemental escrow account
to be split evenly between the purchasers. (Id.) The parties
disagree on the outstanding judgment balance, which Offshore
calculated to be $19,750,357 while the purchasers calculated to
be $35,572,728.65. (Compare id. with Pet’r’s Letter, ECF No.
111-5.) But there is no dispute that the original Judgment
balance has been significantly reduced by the VAT reimbursement
and the payment from the supplemental escrow account and that a
significant amount remains unpaid.
On June 30, 2015, the Clerk of Court entered a certificate
of default against Kallop. (ECF No. 73.) On July 10, 2015,
Kallop moved to vacate the certificate of default. (ECF No. 86.)
On July 13, 2015, the Court granted the motion and vacated the
certificate of default. (ECF No. 87.) Kallop subsequently filed
opposition papers against Ecopetrol’s motion for contempt.
4
II.
A.
For its motion for contempt, Ecopetrol relies on Rule 70(e)
of the Federal Rule of Civil Procedure, which provides a remedy
of contempt if a party fails to comply with a judgment requiring
the performance of a specific act.1 Offshore objects that the
Judgment was not an equitable judgment covered by Rule 70(e) but
a judgment to pay money and that Ecopetrol’s remedy should be
limited to those provided by Federal Rule of Civil Procedure 69
which provides for remedies to enforce money judgments, in
particular execution.
“Ordinarily, the equitable remedies provided under Rule 70
are not appropriate in enforcing a money judgment.” Spain v.
Mountanos, 690 F.2d 742, 744–5 (9th Cir. 1982); see also Combs
v. Ryan’s Coal Co., 785 F.2d 970, 980 (11th Cir. 1986);
Gabovitch v. Lundy, 584 F.2d 559 (1st Cir. 1978). While Rule
69(a) states that process to enforce a judgment for the payment
of money shall be a writ of execution, “unless the court directs
1
Ecopetrol also relies in its order to show cause on 18 U.S.C.
§ 401(3) which provides that a federal court has the power to
punish by contempt certain disobedience or resistance to its
orders. However, that statute is the authority for criminal
contempt and the remedy that Ecopetrol seeks here is civil
contempt to compel compliance with the Judgment. This provision
is therefore inapplicable in this case, and Ecopetrol
acknowledged at the argument of the motion that the citation was
incorrect.
5
otherwise,” the otherwise clause should be read narrowly and
limited to situations where well established principles warrant
such use. Fed. R. Civ. P. 69(a); see Aetna Cas. & Sur. Co. v.
Markarian, 114 F.3d 346, 349 (1st Cir. 1997) (citations and
quotation marks omitted).
The Judgment in this case confirmed an interim arbitral
award, which required Offshore to pay a sum certain to the
petitioners within 30 days of the issuance of the award, and a
supplemental award, which clarified that a payment from the
indemnification escrow account would not satisfy the interim
award. (Ware Aff. Ex. A, Ex. C., Ex. D.) “[T]he confirmation of
an arbitration award . . .
makes what is already a final
arbitration award a judgment of the court.” Florasynth, Inc. v.
Pickholz, 750 F.2d 171, 176 (2d Cir. 1984). The substance of the
award determines its proper characterization. See Jaffee v.
United States, 592 F.2d 712, 715 (3d Cir. 1979) (“A plaintiff
cannot transform a claim for damages into an equitable action by
asking for an injunction that orders the payment of money.”).
The issue then becomes whether the substance of the award is a
“money judgment” under Rule 69.
In the context of Rule 69, the Tenth Circuit Court of
Appeals defined a money judgment as consisting of “two elements:
(1) an identification of the parties for and against whom
judgment is being entered, and (2) a definite and certain
6
designation of the amount which plaintiff is owed by defendant.”
Fox v. Nat’l Oilwell Varco, 602 F. App’x 449, 452 (10th Cir.
2015) (citing Ministry of Def. & Support for the Armed Forces of
the Islamic Republic of Iran v. Cubic Def. Sys., Inc., 665 F.3d
1091, 1101 (9th Cir. 2011) (emphasis and internal quotation
marks omitted)); see also Cubic, 665 F.3d at 1101 (defining the
term “money judgment” for purposes of § 1961(a)); Penn Terra
Ltd. v. Dep’t of Envtl. Res., 733 F.2d 267, 275 (3d Cir. 1984)
(defining the term “money judgment” for purposes of former
Bankruptcy Code § 362(b)(5)).
It is plain that the Judgment in this case consists of
these two elements. It clearly and unambiguously entered
judgment for the purchasers against Offshore. See Offshore, 46
F. Supp. 3d at 337. The judgment granted was the total VAT tax
paid by Savia that should have been paid by Offshore, which
amounted to approximately $75,308,179.03. Id. Ecopetrol does not
deny that the judgment in question consists of these two
elements, but argues unpersuasively that it nevertheless is an
equitable remedy enforceable by contempt.
“Almost invariably . . . suits seeking (whether by
judgment, injunction, or declaration) to compel the defendant to
pay a sum of money to the plaintiff are suits for ‘money
damages,’ as that phrase has traditionally been applied, since
they seek no more than compensation for loss resulting from the
7
defendant's breach of legal duty.” Great-West Life & Annuity
Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002) (citations and
quotation marks omitted) (alteration in original). This is
particularly true when the claim arises under a contractual
obligation to pay money, which is “quintessentially an action at
law.” See Id. (citing Wal–Mart Stores, Inc. v. Wells, 213 F.3d
398, 401 (7th Cir. 2000)). The interim award in this case
enforced a provision of the Stock Purchase Agreement, and the
claim sought nothing more than to compel the payment of money.
The Judgment granting such a claim is a judgment for money
damages and therefore fits squarely within the dictionary
definition of a money judgment. See Black’s Law Dictionary (9th
ed. 2009) (defining a money judgment as “[a] judgment for
damages subject to immediate execution, as distinguished from
equitable or injunctive relief.”).
Ecopetrol contends that because the judgment cannot be
satisfied with funds from the indemnification escrow account,
the judgment is an equitable decree. Contrary to Ecopetrol’s
contention, this requirement supports the conclusion that the
judgment is a money judgment. A monetary recovery might be
equitable, if it imposes “a constructive trust or equitable lien
on particular property,” or legal, if it imposes “personal
liability for the benefits that [the petitioners] conferred upon
respondents.” Knudson, 534 U.S. at 214 (emphasis added); see
8
also Sereboff v. Mid Atl. Med. Servs., Inc., 547 U.S. 356, 362
(2006). In this case, Ecopetrol and its subsidiary advanced VAT
tax payments that under the Stock Purchase Agreement should have
been paid by Offshore. If Ecopetrol sought recovery of its VAT
payment by imposing a constructive trust or equitable lien on
the escrow account that was established for indemnification
purposes, then it may have been a closer question as to whether
a judgment granting such relief would fall within the definition
of a money judgment under Rule 69. However, by requesting that
Offshore pay the amount it was required to pay and not use the
specific asset of the escrow account, Ecopetrol was seeking a
money judgment.
Ecopetrol also argues that the Judgment is not a money
judgment because it was not intended to provide compensation for
past injuries. It is true that an “important factor in
identifying a proceeding as one to enforce a money judgment is
whether the remedy would compensate for past wrongful acts
resulting in injuries already suffered, or protect against
potential future harm.” Penn Terra 733 F.2d at 276-77 (emphasis
in original). However, the Judgment grants reimbursement for
past payments, rather than protecting against potential
prospective harm. While Ecopetrol characterizes the arbitral
award as the provision of “collateral security for the VAT
claim,” (Ecopetrol’s Opp’n at 7, ECF No. 67,) the arbitral panel
9
characterized the relief sought by Ecopetrol as “an Order of
Specific Performance obliging [Offshore] to reimburse Ecopetrol
for certain [VAT payments] that [Savia] . . . was compelled to
pay . . . for the years 2002 through 2007.” (Ware Aff. Ex. C at
1.) The relief granted is therefore to compensate for past
injuries which occurred between 2002 and 2007, and the payment
of money suffices to satisfy the judgment. Cf. Penn Terra, 733
F.2d at 278. Ecopetrol’s reliance on Constr. Tech., Inc. v.
Cybermation, Inc., 965 F. Supp. 416 (S.D.N.Y. 1997) is therefore
misplaced, because that case imposed a contempt sanction for the
violation of the court’s injunctive order to make payments into
an escrow account.
Ecopetrol also contends that the Judgment is not a money
judgment because it contains personal commands for performance
of an act within a specified time period. Although it is true
that a personal command may usually be enforced by contempt, a
personal command to render payments may nevertheless fall within
the meaning of a “money judgment” under Rule 69. See, e.g.,
Indus. Prof’l & Tech. Workers Int'l Union, SIUNA, AFL-CIO v.
Worldtec Grp. Int'l, 25 F. App’x 527, 529 (9th Cir. 2001)
(unpublished); Jou v. Adalian, No. CIV. 09-00226 (JMS), 2015 WL
477268, at *5 (D. Haw. Feb. 5, 2015) (holding contempt
proceeding inappropriate to enforce the trial court’s order
requiring payment of a sum certain within seven days).
10
In cases where contempt is appropriately imposed for the
violation of courts’ orders to render payment, the reliefs are
usually the kinds that are traditionally available in equity,
see, e.g., Tauro v. Allegheny Cty., 371 F. App’x 345, 348 (3d
Cir. 2010) (per curiam) (child support); Donovan v. Sovereign
Sec., Ltd., 726 F.2d 55 (2d Cir. 1984) (back pay pursuant to
section 17 of the Fair Labor Standards Act); S.E.C. v. Zubkis,
No. 97-CV-8086 (JGK), 2003 WL 22118978, at *7 (S.D.N.Y. Sept.
11, 2003) (disgorgement), or those arising under a statutory
scheme that implements an important national policy, see, e.g.,
Pierce v. Vision Investments, Inc., 779 F.2d 302, 308 (5th Cir.
1986) (Interstate Land Sales Full Disclosure Act); Donovan v.
Mazzola, 716 F.2d 1226, 1239 & n. 9 (9th Cir. 1983) (Employee
Retirement Income Security Act); Hodgson v. Hotard, 436 F.2d
1110, 1114 (5th Cir. 1971) (Fair Labor Standards Act), or the
court’s sanctions for misconduct. See, e.g., Cleveland Hair
Clinic, Inc. v. Puig, 106 F.3d 165, 166 (7th Cir. 1997); SD
Prot., Inc. v. Del Rio, 587 F. Supp. 2d 429, 434–36 (E.D.N.Y.
2008). The Judgment in this case, enforcing an arbitral award
assessing damages for a breach of contract claim between private
parties, cannot fit in any of these categories, and is no more
than an ordinary money judgment under Rule 69.
Because the Judgment in this case is an ordinary money
judgment, and because contempt power should not be used to
11
enforce a money judgment, Ecopetrol’s motions against Offshore
and Kallop should be denied for this reason alone. See Fed. R.
Civ. P. 69(a)(1); Markarian, 114 F.3d at 349-50.
B.
In addition, the Court, in the exercise of its discretion,
would decline to issue a finding of contempt against Offshore at
this time. Civil contempt is a “potent weapon,” which courts
should not employ “where there is a fair ground of doubt as to
the wrongfulness of the defendant’s conduct.”
King v. Allied
Vision, 65 F.3d 1051, 1058 (2d Cir. 1995) (internal quotation
marks omitted). The decision as to whether civil contempt
sanctions should issue is within the Court’s discretion. Perez
v. Danbury Hosp., 347 F.3d 419, 423 (2d Cir. 2003). Even with
this discretion, a “district court's contempt power is narrowly
circumscribed,” id., and “the court must not lightly invoke its
contempt power.” In re Att’y Gen. of U. S., 596 F.2d 58, 65 (2d
Cir. 1979).
“A court’s inherent power to hold a party in civil contempt
may be exercised only when (1) the order the party allegedly
failed to comply with is clear and unambiguous, (2) the proof of
noncompliance is clear and convincing, and (3) the party has not
diligently attempted in a reasonable manner to comply.”
12
N.Y.
State Nat. Org. for Women v. Terry, 886 F.2d 1339, 1351 (2d Cir.
1989).
Here, the Court’s judgment confirming the arbitration
awards that required payment by Offshore to the purchasers is
clear and unambiguous, and equally clear is the fact that more
than one year after the judgment, Ecopetrol still had not
received from Offshore the payment required by the court’s
judgment. However, discretion would indicate that civil contempt
sanctions should not issue. Ecopetrol should be able to enforce
the judgment through execution on the Judgment — and Ecopetrol
has made no effort to show that such efforts would be
ineffective. Indeed, Ecopetrol waited eight months – from
September 2014 to May 2015 – to begin discovery in aid of
execution and filed an Order to Show Cause for Contempt that
very same month. After the contempt motion was fully briefed,
Ecopetrol sent a letter demanding full payment of the Judgment
on October 28, 2015. (ECF No. 111-5.) Since then, for another
five months, the petitioner has made no efforts to execute on
the Judgment with the tools and remedies provided for execution.
Ecopetrol has provided no reasonable explanation for its
inaction. At the argument of the current motion, Ecopetrol
explained that it had not pursued execution because creditors’
remedies are “expensive and complicated.” Plainly, Ecopetrol has
not pursued the lawful remedies available to it and the potent
13
weapon of contempt should not be used just because Ecopetrol
feels that execution is too much trouble.
Moreover, Offshore has made some efforts to comply with the
Judgment. Both parties appear to agree that, other than the
escrow accounts, Offshore’s assets are largely illiquid. (Tr. at
19, 22, ECF No. 88.) According to Offshore, the liquidation of
these assets “would not be easily accomplished, would require
considerable time, and would likely result in substantially
compromised valuation of the assets.” (Kallop Aff., ECF No. 85.)
Given its limited liquid assets, Offshore appears to have made
some reasonable efforts to comply with the Judgment. The parties
agree that the Judgment has been substantially reduced by
payments from the supplemental escrow account and from the VAT
reimbursements.
In the exercise of discretion, the Court would decline to
impose civil contempt sanctions at this time.
C.
Ecopetrol seeks to hold Kallop, Offshore’s principal, in
contempt by making him responsible for Offshore’s failure to
comply with the Judgment. Ecopetrol relies on Rule 65(d)(2) of
the Federal Rule of Civil Procedure which provides that an
injunction binds not only the parties but also “the parties’
officers, agents, servants, employees, and attorneys,” who
14
receive actual notice of the injunction. Fed. R. Civ. P.
65(d)(2)(B). Rule 65 applies to “injunctions and restraining
orders,” and more broadly, to an “equitable decree compelling
obedience under the threat of contempt.” Int’l Longshoremen’s
Ass’n v. Phila. Marine Trade Ass’n, 389 U.S. 64, 75-76 (1967). A
permanent injunction, through the automatic operation of Rule
65(d)(2), may bind a non-party who is in active concert or
participation with the parties. See, e.g., NML Capital, Ltd. V.
Republic of Argentina, 727 F.3d 230, 239 (2d Cir. 2013); Brock
v. Casey Truck Sales, Inc., 839 F.2d 872, 874 n.1 (2d Cir.
1988). However, as explained above, the Judgment in this case is
a money judgment under Rule 69 and is not an injunction
enforceable through contempt. Therefore, Ecopetrol cannot use
Rule 65 to create a remedy against Kallop.
Ecopetrol also argues that Kallop should be held in
contempt for Offshore’s alleged preferential payment of certain
debts guaranteed by or associated with Kallop personally, and
for the alleged improper uses of Offshore’s assets by Kallop and
his family for personal purposes. (Ecopetrol’s Reply, ECF No.
98.) The theory is that Kallop has diverted funds away from
Offshore and thus prevented Offshore from complying with the
Court’s Judgment.
Some courts have held that a corporate officer’s “attempts
to drain the corporate resources to avoid satisfying the court's
15
order” may be punished by contempt. See Elec. Workers Pension
Trust Fund of Local Union # 58, IBEW v. Gary's Elec. Serv. Co.,
340 F.3d 373, 384 (6th Cir. 2003). However, this is only
relevant where the contemnor attempts to excuse noncompliance by
his inability to comply. Courts have held that bad faith
behavior by the corporate officer to induce the inability of the
corporation to comply would defeat the inability defense to
contempt, and the corporate officer, with his defense defeated,
may be held in contempt for his failure to direct his
corporation’s compliance with the original order. See, e.g.,
id.; Chicago Truck Drivers v. Bhd. Labor Leasing, 207 F.3d 500,
507-08 (8th Cir. 2000). However, the Judgment in this case is a
money judgment that is not enforceable by contempt, and there is
no need for Offshore to establish an inability defense. It is
therefore unnecessary to consider whether Kallop has caused this
alleged inability.
Moreover, for the same reasons that the Court would not
exercise any discretion to hold Offshore in contempt for not
paying the Judgment, the Court would not hold Kallop in contempt
for not causing Offshore to pay the Judgment. Ecopetrol has
ample civil remedies to execute on the Judgment and to pursue
discovery to find Offshore’s assets and to execute on them.
16
CONCLUSION
The Court has considered all of the arguments raised by the
parties. To the extent not specifically addressed above, they
are either moot or without merit. For the foregoing reasons,
Ecopetrol’s motion, by order to show cause, to hold Offshore and
Kallop in contempt is denied. The Clerk is directed to close all
pending motions in this case.
SO ORDERED.
Dated:
New York, New York
March 28, 2016
_____________/s/____________
John G. Koeltl
United States District Judge
17
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?