Al-Qarqani v. ARAB American Oil Company
Filing
133
MEMORANDUM OPINION AND ORDER denying 108 MOTION to Confirm and Enforce Foreign Arbitral Award. (Signed by Judge George C Hanks, Jr) Parties notified.(gclair, 4)
Case 4:18-cv-01807 Document 133 Filed on 11/17/20 in TXSD Page 1 of 25
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
WALEED BIN AL-QARQANI, et al,
Plaintiffs,
VS.
ARAB AMERICAN OIL COMPANY, et
al,
Defendants.
November 17, 2020
David J. Bradley, Clerk
§
§
§
§ CIVIL ACTION NO. 4:18-CV-1807
§
§
§
§
§
MEMORANDUM OPINION AND ORDER
This is a proceeding to enforce a foreign arbitration award under the United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of
June 10, 1958 (“the Convention”). (Dkt. 77 at p. 2) Before the Court is Petitioners’
Second Amended Petition for Enforcement of Foreign Arbitral Award against
Respondent Saudi Arabian Oil Company (“Saudi Aramco”). (Dkt. 108) The parties have
compiled and presented an extensive record and thorough briefing on the relevant issues,
and the Court has reviewed all the parties’ filings and documents submitted in the record.
The record establishes that, over the strenuous objections of the parties to an
arbitration agreement, Petitioners, who are nonsignatories to this agreement, used the
agreement to arbitrate a dispute that fell outside of the scope of the agreement. The
arbitration proceeding was conducted in direct contravention of the agreement’s explicit
procedural terms and was so riddled with irregularities that it resulted in criminal
convictions for several of the arbitrators involved. For the reasons discussed in greater
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detail below, the Court will not confirm the arbitration award and Petitioners’ motion
(Dkt. 108) is DENIED.
FACTUAL AND PROCEDURAL BACKGROUND
The petitioners claim to be “the private landowner and titleholders of plots of rich
oil land located in Ras Tourna, Saudi Arabia.” (Dkt. 77 at p. 4) They have initiated two
proceedings, this case and a case in the Northern District of California (“the California
case”), to confirm and enforce an $18 billion arbitration award that they obtained in
Egypt against “Chevron Company of USA, Chevron Saudi Arabia1 and Aramco” in 2015.
(Dkt. 77 at pp. 3–4; Dkt. 77-2 at p. 6) The petitioners contend that an arbitral panel
properly found that they own land on which the oil companies are conducting operations
and that the oil companies owe the petitioners “rental value” for use of that land. (Dkt. 77
at p. 3) The claimed basis for the arbitral panel’s jurisdiction is an arbitration clause
contained in an agreement executed in 1933 (“the 1933 agreement” or “the Saudi Arabian
Concession”) by the Saudi Arabian government (“the Government”) and Standard Oil
Company of California (“SoCal”) under which the Government gave SoCal “the absolute
right for a period of sixty years” to, among other things, search for oil in Saudi Arabia.
(Dkt. 77-1 at p. 3) The arbitration clause was Article 31 of the 1933 agreement. (Dkt. 771 at pp. 16–17)
The Court will collectively refer to all companies with “Chevron” in their names as “the
Chevron entities.” The Chevron entities were the respondents in the California case.
1
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According to the petitioners’ translation of the 1933 agreement,2 the arbitration
clause stated:
Should any doubt, difficulty or difference arise between the Government
and the Company in interpreting this Agreement, the execution thereof or
the interpretation or execution of any of it or with regard to any matter that
is related to it or the rights of either of the two parties or the consequences
thereof, and the two parties fail to agree on the settlement of the same in
another way, then the issue shall be referred to two arbitrators with each
party appointing one of the two arbitrators and with the two arbitrators
appointing an umpire prior to proceeding to arbitration. Each party shall
appoint its arbitrator within thirty days of the date of the application made
to it in writing by the other party. Should the two arbitrators fail to appoint
the umpire, then the Government and the Company shall at that point
The parties agree that the 1933 agreement was signed in two iterations, one in Arabic and one
in English. (Dkt. 111 at pp. 40–41; Dkt. 119 at pp. 26–27) The petitioners concede that they have
not provided the English-language version and have instead provided an English translation of
the Arabic-language version. (Dkt. 119 at pp. 26–27) Saudi Aramco does not agree that the
translation is accurate. (Dkt. 111 at p. 12) The petitioners’ translation of the 1933 agreement
notably stipulates that “the English version shall prevail”—and, again, the Court does not have
the English version—if there is “a difference on the interpretation relating to the Company’s
obligations[.]” (Dkt. 77-1 at p. 18) The Court finds that, under these circumstances, the
petitioners’ failure to provide the original or a duly certified copy of the English-language
version of the 1933 agreement warrants the denial of this petition under Article IV of the
Convention, which allows a petitioner to rely on a translation to prove up the pertinent arbitration
agreement only “[i]f the . . . agreement is not made in an official language of the country in
which the award is relied upon[.]” See 21 U.S.T. at 2519–20. Judge White of the Northern
District of California, after examining the same documents that the petitioners presented to this
Court, concluded in the California case that denial was required under Article IV. Al-Qarqani v.
Chevron Corp., No. 4:18-CV-3297, 2019 WL 4729467, at *5 (N.D. Cal. Sept. 24, 2019). Judge
White’s holding that a failure to comply with Article IV of the Convention mandates denial of a
petition to enforce an arbitration award is persuasive and supported by caselaw. See China
Minmetals Materials Import and Export Company, Ltd. v. Chi Mei Corp., 334 F.3d 274, 293–94
(3d Cir. 2003) (Alito, J., concurring) (“The better reading of Article IV—which comports with
fundamental principles of arbitration—requires that the party seeking enforcement both (1)
supply a document purporting to be the agreement to arbitrate the parties’ dispute and (2) prove
to the court where enforcement is sought that such document is in fact an ‘agreement in writing’
within the meaning of Article II, Section 2. In the present case, accordingly, [the petitioner] was
required to demonstrate to the District Court that an officer of [the respondent] signed the
purported nickel contracts.”). Nevertheless, the Court will proceed to address this petition under
the assumption that the petitioners’ translation is accurate and sufficient to satisfy Article IV of
the Convention. Assuming the accuracy and sufficiency of their translation, the petitioners still
do not prevail.
2
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appoint an umpire by consent and should both of them fail to agree, then
they should apply to the President of the Permanent International Court of
Justice to appoint an umpire. The award passed by the two arbitrators in the
case shall be final. However, if they failed to agree, then the award of the
arbitrators in the case shall be final.3 As regards the place of arbitration, the
two parties shall agree on it and if they failed to agree to that then it shall be
in the Hague (Holland).
Dkt. 77-1 at pp. 16–17.
The 1933 agreement defined “the Government” as “the Government of Saudi
Arabia” and defined “the Company” as “Standard Oil of California Company[.]” (Dkt.
77-1 at p. 3) The 1933 agreement specified that it was an “[a]greement . . . between the
Government and the Company[.]” (Dkt. 77-1 at p. 3) No other party was included in the
agreement, except that: (1) SoCal could “assign its rights or obligations specified in this
Agreement” with the Government’s consent; and (2) SoCal could “transfer its rights and
obligations provided for in this agreement to a company to be set up by it for this project
after notifying the Government of the same.” (Dkt. 77-1 at pp. 3, 17) It is undisputed that
the petitioners are nonsignatories to the 1933 agreement. It is further undisputed that
Saudi Aramco, which did not exist in 1933, is a nonsignatory to the 1933 agreement.
In claiming the right to invoke the arbitration provisions of the 1933 agreement,
the petitioners argue that the arbitration provisions were incorporated into a separate
agreement signed sixteen years later by the petitioners’ ancestors and a subsidiary of
This sentence is difficult to comprehend in the context of the arbitration clause and may be a
mistranslation; it seems that the phrase “award of the arbitrators” should read “award of the
umpire.” Elsewhere in the record, this part of the arbitration clause is quoted as using the term
“deciding arbitrator” instead of the term “umpire” and saying that “[t]he ruling of the two
arbitrators shall be considered absolute; if they do not agree among themselves in opinion, then
the ruling of the deciding arbitrator shall be considered final.” (Dkt. 111-4 at pp. 113–14) The
possible mistranslation has no effect on the Court’s reasoning but does help illustrate why the
English version of the 1933 agreement is required to sufficiently prove up the agreement to
arbitrate under Article IV of the Convention.
3
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SoCal. Under Article 25 of the 1933 agreement, the Government authorized SoCal “to
obtain from the owner of the land the surface rights of the lands which the Company
deem[ed] necessary for use in its works pertaining to this project, provided that the
Company [was required to] pay to the occupant of the lands an allowance in
consideration for abandoning the use of such lands.” (Dkt. 77-1 at p. 14) In 1949, the
petitioners’ ancestors transferred land rights to a SoCal subsidiary, Arabian American Oil
Company (“Aramco”),4 as part of the petroleum exploration project. (Dkt. 77-3) The
transfer was memorialized in a deed (“the 1949 deed”). (Dkt. 77-3) The petitioners
contend that the following language from the 1949 deed incorporated the arbitration
provisions of the 1933 agreement:
For the good and valuable consideration to be paid to us, we the
undersigned, for our property under the Deed No. 124, in connection with
the Plots of Land stated in such Deed, we hereby give and transfer, each for
himself and on behalf of his heirs, guardians and lawful representatives, to
the Arab American Oil Company, being the Company referred to in the
said Deed, its successor and whomever it appoints, the right to use and
occupy the mentioned Plots of Land, for the purposes of the Saudi Arabian
Concession,5 concluded on 4 Safar 1352 H., corresponding to 29 July 1933
G. and any additional agreements that may be annexed thereto. We hereby
declare and affirm that the rights of the said Company, as to using and
occupying the said Plots of Land, are based on the requirements of Article
(25) of the said Concession, and we hereby further agree to safeguard the
said Company, its successors and whomever it may appoint, against all
claims, in the past, at present and in future, by any person claiming
ownership or interest in any one of the said Plots of Land.
Dkt. 77 at p. 6; Dkt. 77-3 at p. 6.
SoCal assigned the 1933 agreement to a subsidiary, California Arabian Standard Oil Company,
which changed its name to Arabian American Oil Company. (Dkt. 111-2 at pp. 27–31)
5
The parties agree that the reference to the “Saudi Arabian Concession” is a reference to the
1933 agreement. (Dkt. 77 at p. 6; Dkt. 111 at p. 13)
4
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The 1949 deed made no explicit reference to either arbitration or Article 31 of the
1933 agreement.
During the decades after the execution of the 1949 deed, the Government began
buying Aramco’s assets. (Dkt. 111-1 at pp. 136, 140) By 1988, the Government had
bought all of Aramco’s assets and had created Saudi Aramco. (Dkt. 111-1 at pp. 136,
140, 159, 161) Aramco dissolved in 1990. (Dkt. 111-1 at pp. 175, 205)
In 2011, more than sixty years after the execution of the 1949 deed, the petitioners
initiated legal proceedings against Saudi Aramco in the Saudi Arabian courts, contending
that the 1949 deed memorialized a lease, not a sale. (Dkt. 111-1 at pp. 13–14, 243–44,
296–97) The petitioners’ characterization of the 1949 transaction as a lease rather than a
sale provides the foundation for their contentions that they now own the land discussed in
the 1949 deed and that Saudi Aramco and the Chevron entities owe the petitioners “rental
value” for the period beginning at the time the 1933 agreement expired. (Dkt. 77 at p. 3)
A Saudi Legal Committee and the President of the Council of Ministers rejected the
petitioners’ claim and found that the 1949 deed memorialized a sale. (Dkt. 111-1 at pp.
13–14, 243–44, 296–97) The proceedings determined that the Government, which had
long since bought all of Aramco’s assets, owned the land discussed in the 1949 deed.
(Dkt. 111-1 at pp. 13–14, 243–44, 296–97)
The petitioners then initiated an arbitration proceeding in Egypt against Saudi
Aramco and the Chevron entities using an entity called the International Arbitration
Center (“IAC”). After receiving notice of the arbitration from the IAC, Saudi Aramco
wrote a letter to the IAC saying that it would not participate. (Dkt. 128-4 at p. 140) In its
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letter, Saudi Aramco “reject[ed] the arbitration” as “null and void in [its] entirety.” (Dkt.
128-4 at p. 140) Saudi Aramco stated in its letter that it had no arbitration agreement with
the petitioners and that the land discussed in the 1949 deed belonged to the Government.
(Dkt. 128-4 at p. 140) In a letter of their own, the Chevron entities also objected to the
arbitration and argued that no valid arbitration agreement between them and the
petitioners existed, though the Chevron entities, “as a precautionary measure,” nominated
an arbitrator. (Dkt. 111-4 at p. 37) Over these protests, the petitioners pushed forward
with the IAC arbitration in Egypt.
Even setting aside the fact that every single respondent vigorously objected to the
proceeding and denied the existence of any arbitration agreement, the IAC arbitration
progressed in a manner that can only be described as concerning. At least three arbitrators
resigned during the proceeding, with two of them doing so via a joint letter that expressed
a “lack of confidence in the ability of [the IAC] to be entrusted with the administration of
the required arbitration.” (Dkt. 77-2 at pp. 9–17; Dkt. 111-4 at p. 53) Remarkably, one of
the arbitrators who signed the joint resignation letter expressing a lack of confidence in
the IAC had been selected by the IAC on behalf of the petitioners. (Dkt. 77-2 at p. 9; Dkt.
111-4 at p. 53) At least seven different arbitrators ultimately participated in the
proceeding at one point or another, and at least three different combinations of arbitrators
filled the three seats on the arbitration panel. (Dkt. 77-2 at pp. 9–17) The disjointed
proceeding produced a disjointed result: the tribunal issued an opinion holding that it
lacked jurisdiction over the dispute, then, with different members, reopened the
arbitration and issued a second opinion holding not only that it had jurisdiction but that
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the petitioners were entitled to $18 billion. (Dkt. 77-2; Dkt. 111-4 at pp. 104–15) Perhaps
most telling, the second opinion also held that the IAC itself was entitled to “arbitration
fees” totaling 1/8 of one percent “of the total value of the Claims of the [petitioners]”—
about $23 million. (Dkt. 77-2 at p. 35)
The second opinion, and in particular the IAC’s award of a staggeringly large fee
to itself, attracted the attention of Egyptian prosecutors, who concluded that the second
opinion was part of a “criminal plan” to “obtain the arbitration fees, representing a
percentage of the award[.]” (Dkt. 111-3 at pp. 87, 105–06) An Egyptian court convicted
two IAC administrators and three arbitrators of fraud, forgery, and similar crimes for
their roles in reopening the arbitration and issuing the $18 billion award. (Dkt. 111-3 at
pp. 203–15) The Egyptian court found that, “[d]espite the fact that an award definitively
ending the fabricated case—which concluded that the Arbitration Tribunal did not have
jurisdiction to hear it—had already been issued, the [IAC administrators and arbitrators]
nevertheless insisted on issuing [a] falsified award” with the aim of “fabricat[ing] a proof
of debt against the . . . companies in order to misappropriate their assets.” (Dkt. 111-3 at
pp. 203–04)
It is not surprising that the petitioners’ quest to confirm their award has thus far
come up empty. Two federal district judges have examined the award, and neither
confirmed it. The California case, in which the petitioners named various Chevron
entities as respondents, has been dismissed in its entirety by Judge White of the Northern
District of California and is on appeal before the Ninth Circuit. See Al-Qarqani v.
Chevron Corp., No. 4:18-CV-3297, 2019 WL 4729467 (N.D. Cal. Sept. 24, 2019); see
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also Ninth Circuit Docket Number 19-17074. In this case, in which the petitioners
originally named Aramco Services Company (“ASC”) and Aramco as respondents, Judge
Miller of the Southern District of Texas granted ASC’s motion to dismiss because “ASC
is not bound to the arbitration agreement and none of the theories to bind a nonsignatory
apply.” (Dkt. 47 at p. 7) The dismissal rulings by Judge Miller and Judge White left as
the lone remaining named respondent Aramco, which, as Judge Miller noted, dissolved
25 years before the arbitration proceeding at issue. (Dkt. 47 at p. 1) This case was then
reassigned to the undersigned judge.
Since Aramco has not existed for decades, the petitioners sought leave from the
Court to amend their petition to name Saudi Aramco as a respondent. (Dkt. 50 at p. 14)
The Court granted leave to amend. (Dkt. 55)
THE NEW YORK CONVENTION
United States District Courts have federal question jurisdiction over petitions to
confirm awards under the Convention. See 9 U.S.C. § 203; see also 28 U.S.C. §1331. The
text of the Convention is contained at pages 2517 to 2566 of Volume 21 of a United
States Department of State publication entitled United States Treaties and Other
International Agreements. See 21 U.S.T. 2517. The legislation implementing the
Convention is contained in Chapter 2 of the Federal Arbitration Act (“the FAA”). GE
Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S.
Ct. 1637, 1644 (2020).
An action to confirm an international arbitration award is not “an ordinary civil
action” but “a summary procedure in the nature of federal motion practice[.]” Imperial
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Ethiopian Government v. Baruch-Foster Corp., 535 F.2d 334, 335, 337 & n.2 (5th Cir.
1976). “The court shall confirm the award unless it finds one of the grounds for refusal or
deferral of recognition or enforcement of the award specified in the said Convention.” 9
U.S.C. § 207. The Court has examined the evidence in the record and will not confirm the
IAC arbitration award. The Court finds that the following three grounds for refusal to
confirm exist:
(1) There was no agreement to arbitrate between the petitioners and Saudi
Aramco;
(2) The question of whether the 1949 deed memorialized a lease or a sale fell
outside the scope of the arbitration clause invoked by the petitioners; and
(3) The IAC proceeding did not conform to the procedures outlined in the
arbitration clause invoked by the petitioners.
A. The Court will not confirm the petitioners’ award because there was no
agreement to arbitrate between the petitioners and Saudi Aramco.
In United States federal courts, the absence of a valid agreement to arbitrate is a
ground for refusing to confirm an arbitration award under the Convention. In re
Arbitration between Exceed International Limited v. DSL Corp., No. 4:13-CV-2572,
2014 WL 1761264, at *4–5 (S.D. Tex. Apr. 30, 2014) (Atlas, J.) (discussing Sarhank
Group v. Oracle Corp., 404 F.3d 657, 662 (2d Cir. 2005); China Minmetals Materials
Import and Export Company, Ltd. v. Chi Mei Corp., 334 F.3d 274, 286 (3d Cir. 2003);
and VRG Linhas Aereas S.A. v. MatlinPatterson Global Opportunities Partners II, L.P.,
717 F.3d 322, 325 (2d Cir. 2013)). That ground for refusal is found in Article V(2) of the
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Convention, which provides that a United States federal court is not required to confirm
an award when the subject matter of the parties’ difference is not capable of settlement by
arbitration under United States law or when enforcement would be contrary to the public
policy of the United States. Id.; see also Article V(2) of the Convention, 21 U.S.T. at
2520 (“Recognition and enforcement of an arbitral award may also be refused if the
competent authority in the country where recognition and enforcement is sought finds
that . . . [t]he subject matter of the difference is not capable of settlement by arbitration
under the law of that country . . . or . . . [t]he recognition or enforcement of the award
would be contrary to the public policy of that country.”). Under United States law, a valid
agreement to arbitrate is a prerequisite for an enforceable arbitration award; and the
enforcement of an arbitration award when there was no valid agreement to arbitrate is
contrary to the public policy of the United States. Exceed, 2014 WL 1761264 at *4–5.
Here, there was no agreement to arbitrate. The petitioners rely on the arbitration
provisions of the 1933 agreement to establish the existence of an arbitration agreement
between them and Saudi Aramco. It is undisputed that the petitioners and Saudi Aramco
are nonsignatories to the 1933 agreement. Although nonsignatories can, under certain
circumstances, enforce and be bound by arbitration agreements, the petitioners here
cannot enforce the arbitration provisions of the 1933 agreement, even assuming that
Saudi Aramco is bound by those provisions.
As a preliminary matter, the Court notes that Chapter 1 of the FAA applies to
proceedings that are brought under Chapter 2 to the extent that Chapter 1 is not in conflict
with Chapter 2 or the Convention. GE Energy, 140 S. Ct. at 1644; see also 9 U.S.C. §
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208. Chapter 1 and Chapter 2 are not in conflict on the question of whether a
nonsignatory to an arbitration agreement, like petitioners and Saudi Aramco here, can
invoke or be bound by that agreement. Todd v. Steamship Mutual Underwriting
Association (Bermuda) Limited, 601 F.3d 329, 334–35 & n.10 (5th Cir. 2010). Rather, “in
both FAA and Convention cases, courts have largely relied on the same common law
contract and agency principles to determine whether nonsignatories must arbitrate[.]
Consequently, . . . cases discussing whether nonsignatories can be compelled to arbitrate
under the FAA are relevant for this case governed by the New York Convention.” Id. at
334–35.
“The federal policy favoring arbitration does not apply to the determination of
whether there is a valid agreement to arbitrate between the parties.” Morrison v. Amway
Corp., 517 F.3d 248, 254 (5th Cir. 2008) (quotation marks omitted). Moreover,
“[a]rbitration agreements apply to nonsignatories only in rare circumstances.” Bridas
S.A.P.I.C. v. Government of Turkmenistan, 345 F.3d 347, 358 (5th Cir. 2003). So,
“[w]here the very existence of any agreement is disputed, it is for the courts to decide at
the outset whether an agreement was reached, applying state-law principles of contract.”
Will-Drill Resources, Inc. v. Samson Resources Company, 352 F.3d 211, 218 (5th Cir.
2003). “Courts addressing whether a non-signatory can enforce an arbitration agreement
are guided by traditional principles of state law, which allow a contract to be enforced by
or against nonparties to the contract through assumption, piercing the corporate veil, alter
ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel.”
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Halliburton Energy Services, Inc. v. Ironshore Specialty Insurance Company, 921 F.3d
522, 531 (5th Cir. 2019) (quotation marks omitted).
With these bedrock guidelines in mind, the Court will analyze the question of
whether the petitioners can invoke the arbitration provisions of the 1933 agreement using
“Texas law, which is the law of the forum, there having been no showing that the law of
any other arguably more appropriate state materially differs in respect to the present
issue.” Morrison, 517 F.3d at 254; see also Exceed, 2014 WL 1761264 at *6–7 (applying
Texas law in a proceeding to enforce an arbitration award under the Convention). Under
Texas law, “[w]ho is bound by an arbitration agreement is normally a function of the
parties’ intent, as expressed in the agreement’s terms.” Jody James Farms, JV v. Altman
Group, Inc., 547 S.W.3d 624, 633 (Tex. 2018). When addressing the matter of whether
nonsignatories are bound by an arbitration agreement, Texas courts “endeavor to keep
[Texas substantive law] consistent with federal law.” In re Labatt Food Service, L.P., 279
S.W.3d 640, 643 (Tex. 2009). Drawing on federal law, the Texas Supreme Court has
“articulated six scenarios in which arbitration with non-signatories may be required: (1)
incorporation by reference, (2) assumption, (3) agency, (4) alter ego, (5) equitable
estoppel, and (6) third-party beneficiary.” Jody James Farms, 547 S.W.3d at 633; see
also In re Kellogg Brown & Root Inc., 166 S.W.3d 732, 739 (Tex. 2005).
The petitioners have provided a lengthy discourse on Texas contract law but have
not put forward a viable basis on which they can establish entitlement to enforce the
arbitration provisions of the 1933 agreement. (Dkt. 119 at pp. 11–24) They argue that the
following three principles listed in Jody James Farms allow them to enforce the
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arbitration provisions: incorporation by reference; equitable estoppel; and third-party
beneficiary. (Dkt. 119 at pp. 16–22) The petitioners also argue, citing Labatt, that their
claims are derivative of the Government’s rights. (Dkt. 119 at pp. 22–23) The Court
disagrees with all of the petitioners’ contentions.
i.
Incorporation by reference
The first principle allowing nonsignatory enforcement that the petitioners invoke
is incorporation by reference. The petitioners argue that the 1949 deed incorporated the
arbitration provisions of the 1933 agreement through the two references to the 1933
agreement in the following language:
For the good and valuable consideration to be paid to us, we the
undersigned, for our property under the Deed No. 124, in connection with
the Plots of Land stated in such Deed, we hereby give and transfer, each for
himself and on behalf of his heirs, guardians and lawful representatives, to
the Arab American Oil Company, being the Company referred to in the
said Deed, its successor and whomever it appoints, the right to use and
occupy the mentioned Plots of Land, for the purposes of the Saudi Arabian
Concession, concluded on 4 Safar 1352 H., corresponding to 29 July 1933
G. and any additional agreements that may be annexed thereto. We hereby
declare and affirm that the rights of the said Company, as to using and
occupying the said Plots of Land, are based on the requirements of Article
(25) of the said Concession, and we hereby further agree to safeguard the
said Company, its successors and whomever it may appoint, against all
claims, in the past, at present and in future, by any person claiming
ownership or interest in any one of the said Plots of Land.
Dkt. 77 at p. 6; Dkt. 77-3 at p. 6.
The Court finds this argument unpersuasive. Under Texas law, a party arguing that
a contract incorporated an arbitration provision from another contract must show
“express incorporation of binding arbitration” and a “clear, unequivocal and
unconditional agreement to arbitrate[.]” Cerveceria Cuauhtemoc Moctezuma S.A. de C.V.
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v. Montana Beverage Co., 330 F.3d 284, 287 (5th Cir. 2003); see also Seale v. Roy M.
Mitchell Contracting Co., 321 S.W.2d 149, 150–51 (Tex. Civ. App.—Austin 1959, writ
ref’d)6 (holding that contracting parties will be deemed to have incorporated the
arbitration provisions of a separate contract “only when the terms of their contract are
clear and certain in showing that they had such intention”). Neither the “Saudi Arabian
Concession” reference nor the more specific reference to Article 25 of the 1933
agreement was sufficient to incorporate the arbitration provisions of the 1933 agreement.
Take the reference to Article 25. In its entirety, Article 25 read:
The Government authorizes to [sic] company to obtain from the owner of
the land the surface rights of the lands which the Company deems
necessary for use in its works pertaining to this project, provided that the
Company shall pay to the occupant of the lands an allowance in
consideration for abandoning the use of such lands. However, the amount
to be paid to it (occupant) must be fair and based on the benefit which the
occupant of the land obtains from it. The Government shall extend to the
Company all reasonable assistance in case of difficulties arising out of
obtaining the rights from the occupant of the surface of the land. Naturally,
the Company shall have no right to obtain the holy sites nor occupy them.
Dkt. 77-1 at p. 14.
Incorporation of this language, which only discusses the acquisition and transfer of
surface rights to land, did not constitute incorporation of any arbitration provisions. The
1933 agreement’s arbitration provisions were contained in Article 31, not Article 25, and
Article 25 of the 1933 agreement did not mention either Article 31 or arbitration. (Dkt.
77-1 at pp. 14, 16–17) Furthermore, the language from the 1949 deed did not mention
The Texas Supreme Court assigned Seale a “writ ref’d” notation, which means that, although
the opinion was issued by an intermediate appellate court, the Texas Supreme Court adopted the
opinion and judgment as its own. In re Smith Barney, Inc., 975 S.W.2d 593, 596 (Tex. 1998). In
other words, Seale has the same precedential weight as an opinion of the Texas Supreme Court.
6
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either arbitration or Article 31 of the 1933 agreement; and Article 31 of the 1933
agreement did not mention arbitration involving anyone but the Government and SoCal.
(Dkt. 77-1 at pp. 16–17; Dkt. 77-3 at p. 6) The Court finds that these arguments
attempting to link the 1949 deed to Article 31 of the 1933 agreement through a reference
in the 1949 deed to Article 25 of the 1933 agreement cannot establish a “clear,
unequivocal and unconditional agreement to arbitrate” under Texas law. Cerveceria, 330
F.3d at 287.
The petitioners also cannot rely on the “Saudi Arabian Concession” reference,
meaning the 1949 deed’s statement that it transferred to Aramco “the right to use and
occupy the mentioned Plots of Land, for the purposes of the Saudi Arabian
Concession[.]” (Dkt. 77-3 at p. 6) Read in context, the “Saudi Arabian Concession”
reference was merely another reference to Article 25.
Seale provides a helpful analogy. In Seale, a contractor argued that a subcontract
incorporated the arbitration provisions of a principal contract, even though the principal
contract only “contained provisions for arbitrating disputes between the [contractor’s
client] and [the contractor.]” Seale, 321 S.W.2d at 149–50. The contractor based his
argument on language in the subcontract providing that the subcontractor would “comply
with all terms and conditions pertaining to his part of the work as contained in the
[principal] contract . . . , as attached to the plans and specifications and made a part of the
contract of which is herein included in this agreement.” Id. at 150 (emphasis removed).
The Seale Court disagreed with the contractor and held that “the only terms and
provisions of the main contract incorporated in the subcontract by its terms were those
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provisions which relate to the performance of the work [the subcontractor] contracted to
do.” Id. at 151. “The arbitration provisions d[id] not fit th[at] classification.” Id.
Accordingly, there was “no clear incorporation of the arbitration provisions of the
principal contract into the subcontract[.]” Id.
So it is here with the “Saudi Arabian Concession” reference; the reference
incorporated, if anything, only the terms of the 1933 agreement discussing Aramco’s
“right to use and occupy the mentioned Plots of Land”—namely, Article 25. (Dkt. 77-3 at
p. 6) The arbitration provisions of Article 31, which only contained provisions discussing
dispute resolution between the Government and SoCal, were certainly not clearly
included in that reference. The “Saudi Arabian Concession” reference did not
demonstrate a clear incorporation of the 1933 agreement’s arbitration provisions into the
1949 deed.
Under these circumstances, the 1949 deed’s two references to the 1933 agreement
did not constitute an express incorporation of binding arbitration or a clear, unequivocal,
and unconditional agreement to arbitrate.
ii.
Equitable estoppel
The petitioners next argue that they may enforce the arbitration provisions of the
1933 agreement under the principle of equitable estoppel. (Dkt. 119 at pp. 12, 19–21)
Equitable estoppel is a matter of judicial discretion and can be a difficult doctrine to
articulate and apply in the arbitration context. Bridas, 345 F.3d at 360–61 & n.12; see
also Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 531 (5th Cir. 2000)
(Dennis, J., dissenting) (quoting 4 Richard A. Lord, Williston on Contracts § 8.5, at 73
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(4th ed. 1992)) (“[N]early anything can be called estoppel. When a lawyer or a judge
does not know what other name to give for his decision to decide a case in a certain way,
he says there is an estoppel.”). Even so, the caselaw defines two specific theories of
equitable estoppel mentioned by the petitioners: “direct benefits” estoppel and
“intertwined claims” estoppel. (Dkt. 119 at pp. 12, 19–21) “Direct benefits estoppel
applies when a nonsignatory knowingly exploits the agreement containing the arbitration
clause.” Bridas, 345 F.3d at 361–62 (quotation marks omitted). Under the intertwined
claims estoppel theory, “non-signatories can successfully compel arbitration when (1)
they have a close relationship with a signatory to a contract with an arbitration agreement
and (2) the claims are intimately founded in and intertwined with the underlying contract
obligations.” Jody James Farms, 547 S.W.3d at 639 (quotation marks omitted).
Regardless of the name the petitioners use for it, the Court declines to apply any
equitable estoppel theory here for one fundamental reason: no one has sued the
petitioners on the 1933 agreement. Equitable estoppel theories exist to prevent a “plaintiff
from relying upon the defendants’ status as a nonsignatory to prevent the defendants from
compelling arbitration under the agreement.” Bridas, 345 F.3d at 360 (emphasis on first
two italicized words added); see also Jody James Farms, 547 S.W.3d at 637 (“In the
archetypal direct-benefits case, the party opposing arbitration seeks to enforce the terms
of an agreement with an arbitration clause.”) (emphasis added). Courts applying equitable
estoppel recognize that a “plaintiff cannot, on the one hand, seek to hold the nonsignatory
liable pursuant to duties imposed by the agreement, which contains an arbitration
provision, but, on the other hand, deny arbitration’s applicability because the defendant is
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a nonsignatory.” Bridas, 345 F.3d at 361. That did not happen here; no plaintiff ever
sought to hold the petitioners liable pursuant to duties imposed by the 1933 agreement. In
the 2011 proceedings in the Saudi Arabian courts, the petitioners were the ones seeking
to hold Saudi Aramco liable—and those proceedings were based on the 1949 deed.
Recognizing this problem, the petitioners argue that “Aramco and Saudi Aramco”
have sought indemnity from the petitioners in the past for “harm, encumbrances, or
damages they do to the land or third-party adjacent lands.” (Dkt. 119 at p. 21) The
petitioners point to letters in the record that they claim show that Aramco and Saudi
Aramco “have been sued in Saudi Courts for damages” in the past and have asked the
petitioners “to pay for damages and indemnify them, or defend them in Saudi Court.”
(Dkt. 119 at p. 21; Dkt. 121-2) However, the letters provided by the petitioners do not
show that anyone, much less Aramco or Saudi Aramco specifically, ever invoked the
1933 agreement against them; when the letters requested indemnification, they did so
pursuant to the 1949 deed. (Dkt. 121-2 at pp. 7, 29, 31) The 1933 agreement did not even
contain any provisions addressing indemnification of SoCal, the Government, or their
successors by landowners. (Dkt. 77-1) The petitioners’ equitable estoppel argument, in
other words, is a recasting of their already-rejected argument that the 1949 deed
incorporated the 1933 agreement by reference. Accordingly, the Court will not apply
equitable estoppel to allow the petitioners to invoke the arbitration provisions of the 1933
agreement.
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iii.
Third-party beneficiary
The petitioners next argue that they can enforce the arbitration provisions of the
1933 agreement using the third-party beneficiary doctrine. (Dkt. 119 at pp. 21–22) The
Court also finds this argument unpersuasive.
“Parties are presumed to be contracting for themselves only. This presumption
may be overcome only if the intent to make someone a third-party beneficiary is clearly
written or evidenced in the contract.” Bridas, 345 F.3d at 362 (citation and quotation
marks omitted). Texas third-party beneficiary law comports with the Fifth Circuit’s
general statement in Bridas:
Like other contracts, arbitration agreements may also be enforced by thirdparty beneficiaries, so long as the parties to the contract intended to secure a
benefit to that third party and entered into the contract directly for the third
party’s benefit. The benefit must be more than incidental, and the contracting
parties’ intent to confer a direct benefit to a third party must be clearly and
fully spelled out or enforcement by the third party must be denied. Whether the
third party intended or expected to benefit from the contract is irrelevant,
because only the intention of the contracting parties in this respect is of
controlling importance.
Jody James Farms, 547 S.W.3d at 635 (footnotes and quotation marks
omitted).
The petitioners do not specify any language in the 1933 agreement indicating that
the Government and SoCal entered into the 1933 agreement directly for the petitioners’
benefit, and the Court can find no such language on its own. The provisions of Article 25
regarding the acquisition of surface rights did nothing more than allocate the
responsibilities for such acquisition between the Government and SoCal; they did not, for
instance, “identify a specific sum which the [Government and SoCal were to] pay to a
certain person or entity” or “illustrate a clear intent to repay a debt owed[,]” so they
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cannot rebut the presumption that the Government and SoCal contracted for themselves
only. Tawes v. Barnes, 340 S.W.3d 419, 426–29 (Tex. 2011) (“The [oil and gas
operating] Agreements demonstrate that the clear intent of the signatories thereto was to
allocate responsibilities for the payment of operating expenses for the specific purpose of
maintaining each . . . lease, not to directly benefit [a nonsignatory lessor who was
claiming third-party beneficiary status].”); see also Brown v. Fullenweider, 52 S.W.3d
169, 170 (Tex. 2001) (holding that a decree of divorce was not a third-party beneficiary
agreement in favor of one party’s attorney because the decree did not name the attorney
and merely allocated responsibility for the payment of his fees, along with other financial
obligations, between the parties). At best, the petitioners were incidental beneficiaries of
the 1933 agreement, which does not entitle them to utilize the third-party beneficiary
doctrine.
iv.
Derivative claims
Finally, the petitioners argue that they can enforce the arbitration provisions of the
1933 agreement because their claims are derivative of the Government’s rights. (Dkt. 119
at pp. 22–23) For this proposition, the petitioners cite Labatt, in which the Texas
Supreme Court held that wrongful death beneficiaries are bound by a decedent’s
agreement to arbitrate because the beneficiaries “stand in [the decedent’s] legal shoes[.]”
Labatt, 279 S.W.3d at 645–47.
The Court disagrees with petitioners’ argument. The principle established by
Labatt is not applicable under the facts of this case. The Texas wrongful-death statutes
provide a “right of statutory beneficiaries to maintain a wrongful death action [that] is
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entirely derivative of the decedent’s right to have sued for his own injuries immediately
prior to his death.” Id. at 644. By contrast, the petitioners’ claims were in no way
derivative of any claimed right of the Government to sue for unpaid rent. To the contrary,
the petitioners have consistently argued that they, and not the Government, own the land
discussed in the 1949 deed. In fact, the reason the petitioners initiated this arbitration in
the first place was to circumvent the findings of a Saudi Legal Committee and the
President of the Council of Ministers that the Government owns the land at issue. (Dkt.
111-1 at pp. 13–14, 243–44, 296–97) Under these facts, the petitioners cannot use Labatt
to establish an agreement to arbitrate.
There was no agreement to arbitrate between the petitioners and Saudi Aramco.
Accordingly, under Article V(2) of the Convention, the Court refuses to confirm the
petitioners’ arbitration award.
B. The Court will not confirm the petitioners’ award because the question of
whether the 1949 deed memorialized a lease or a sale fell outside the scope
of the arbitration clause invoked by the petitioners.
A second ground for refusing to confirm an award under the Convention is listed
in Article V(1)(c). Under Article V(1)(c), a court may refuse to confirm an award upon
“proof that . . . [t]he award deals with a difference not contemplated by or not falling
within the terms of the submission to arbitration, or it contains decisions on matters
beyond the scope of the submission to arbitration[.]” See 21 U.S.T. 2520. That ground
applies here.
As Judge White found in the California case, the scope of the 1933 agreement
“was limited to the grant of rights in the extraction of hydrocarbons on public and private
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lands as granted by the Kingdom of Saudi Arabia.” Chevron, 2019 WL 4729467 at *7.
The 1933 agreement’s arbitration clause “does not purport to cover a dispute concerning
money allegedly owed under a deed transferring private rights and the title of land to
another party.” Id. The Court agrees with Judge White. The question of whether the 1949
deed memorialized a lease or a sale fell outside the scope of the 1933 agreement’s
arbitration provisions. Accordingly, under Article V(1)(c) of the Convention, the Court
refuses to confirm the petitioners’ arbitration award.
C. The Court will not confirm the petitioners’ award because the IAC
proceeding did not conform to the procedures outlined in the arbitration
clause invoked by the petitioners.
A third ground for refusing to confirm an award under the Convention is listed in
Article V(1)(d). Under Article V(1)(d), a court may refuse to confirm an award upon
“proof that . . . [t]he composition of the arbitral authority or the arbitral procedure was
not in accordance with the agreement of the parties[.]” See 21 U.S.T. 2520. That ground
applies here.
The arbitration provisions of the 1933 agreement explicitly set out an ad hoc
process whereby:
the issue shall be referred to two arbitrators with each party appointing one
of the two arbitrators and with the two arbitrators appointing an umpire
prior to proceeding to arbitration. Each party shall appoint its arbitrator
within thirty days of the date of the application made to it in writing by the
other party. Should the two arbitrators fail to appoint the umpire, then the
Government and the Company shall at that point appoint an umpire by
consent and should both of them fail to agree, then they should apply to the
President of the Permanent International Court of Justice to appoint an
umpire. The award passed by the two arbitrators in the case shall be final.
However, if they failed to agree, then the award of the arbitrators in the
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case shall be final.7 As regards the place of arbitration, the two parties shall
agree on it and if they failed to agree to that then it shall be in the Hague
(Holland).
Dkt. 77-1 at pp. 16–17.
As Judge White succinctly found in the California case, “[n]one of these
procedures were followed as required.” Chevron, 2019 WL 4729467 at *6. Instead of
pursuing an ad hoc arbitration in Holland, the petitioners unilaterally commenced an
institutional arbitration in Egypt through the IAC over the objections of all of the
respondents, including Saudi Aramco. Id. The makeup of the arbitral panel did not
conform to the requirements of the arbitration clause, as the arbitrators and umpire were
not properly selected; “[t]here were multiple resignations of appointed arbitrators, some
in protest of the proceedings, and a rotating cast of arbitrators filled the positions vacated
by others.” Id. Most alarmingly of all, the tribunal issued an opinion holding that it lacked
jurisdiction over the dispute, then, with different members, reopened the arbitration and
issued a second opinion holding not only that it had jurisdiction but that the petitioners
were entitled to $18 billion. Id. The record in this case supports every one of Judge
White’s findings under Article V(1)(d) in the California case, and this Court seconds
those findings.
The IAC proceeding did not conform to the procedures outlined in the 1933
agreement’s arbitration provisions. Accordingly, under Article V(1)(d) of the
Convention, the Court refuses to confirm the petitioners’ arbitration award.
As previously noted, it seems that the phrase “award of the arbitrators” in this sentence should
read “award of the umpire.”
7
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CONCLUSION
The Court will not confirm the petitioners’ arbitration award under Articles
V(1)(c), V(1)(d), and V(2) of the Convention, irrespective of whether the respondent is
Saudi Aramco or any other party. The petitioners’ motion to confirm their award (Dkt.
108) is DENIED, and this matter is DISMISSED. All other motions are denied as moot.
The Court will issue a final judgment simultaneously with this opinion.
SIGNED at Houston, Texas, this 17th day of November, 2020.
___________________________________
GEORGE C. HANKS, JR.
UNITED STATES DISTRICT JUDGE
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