News & Events

On July 1, 2015, the Second Circuit Court of Appeals rejected an appeal by VRG Linhas Aereas S/A (“VRG”), a Brazilian airline, which sought to enforce an ICC international arbitration award against MatlinPatterson. A three-arbitrator ICC panel rendered the award in Brazil in 2010 in an arbitration over a purchase price dispute between the buyer of VRG (the Brazilian airline Gol) and the seller, which at the time was one of MatlinPatterson’s portfolio companies. The arbitrators found MatlinPatterson (a non-party to the Purchase and Sale Agreement that contained the purchase price adjustment provisions as well as the arbitration clause) liable to the buyer for approximately $55 million (at the then-current exchange rate) under a tort theory that neither party had raised in the arbitration. The buyer, through its new subsidiary VRG, then filed a petition to enforce the award in the United States District Court for the Southern District of New York under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (known as the New York Convention). Consistent with its pro-enforcement policy, the New York Convention prescribes a limited number of defenses that award debtors may raise to resist enforcement of international arbitration awards. One such defense that the Second Circuit has recognized is that the arbitrators lacked jurisdiction to render the award. Judge Cedarbaum of the Southern District of New York rejected VRG’s petition for this reason, finding that the arbitrators lacked jurisdiction over MatlinPatterson because MatlinPatterson had not agreed to the arbitration clause. 

VRG advanced two principal arguments on appeal. First, VRG contended that the Court should defer to prior decisions by the Brazilian courts, which have to date denied MatlinPatterson’s petition to vacate the ICC award for lack of jurisdiction, and preclude MatlinPatterson from relitigating that issue. Second, VRG argued that MatlinPatterson did agree to arbitrate by signing a side letter agreement (in which MatlinPatterson agreed not to compete with Gol in the passenger airline business) that VRG argued incorporated by reference the arbitration clause from the Purchase and Sale Agreement. The Second Circuit panel, consisting of Judges José A. Cabranes, Rosemary S. Pooler and Denny Chin, rejected VRG’s arguments and affirmed the District Court in a summary order. It held that the question of arbitrability under the New York Convention must be decided in the first instance under U.S. law, which foreclosed VRG’s preclusion argument based on the Brazilian decisions. On the merits, the panel determined that the non-compete side letter did not incorporate by reference the arbitration clause from the Purchase and Sale Agreement. Consequently, it held that the arbitrators lacked jurisdiction over MatlinPatterson and the award is unenforceable in the U.S.

The Simpson Thacher team consisted of Robert Smit (who argued the appeal), Tyler Robinson, Josh Slocum, William Pilon, David Gallo, summer associate Taylor Steele and international associate Paris Aboro.