FILED: NEW YORK COUNTY CLERK 10/11/2016 11:52 PM INDEX NO. 654716/2016 NYSCEF DOC. NO. 37 RECEIVED NYSCEF: 10/11/2016 John G. Balestriere Matthew W. Schmidt Paul M. Tarr BALESTRIERE FARIELLO 225 Broadway, 29th Floor New York, New York 10007 Telephone: (646) 912-8463 Facsimile: (212) 208-2613 john.balestriere@balestrierefariello.com matthew.schmidt@balestrierefariello.com paul.tarr@balestrierefariello.com Attorneys for Respondent SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK MEXVALO, S. DE R.L. DE C.V., against Petitioner, DESARROLLADORA FARALLON S. DE R.L. DE C.V., Respondent. Index No. 654716/2016 MEMORANDUM OF LAW IN OPPOSITION TO CONFIRMATION OF AWARD AND IN SUPPORT OF VACATUR OF AWARD Motion Sequence No. 001 1 of 30
TABLE OF CONTENTS PRELIMINARY STATEMENT... 1 STATEMENT OF FACTS... 9 ARGUMENT... 17 I. THE ATTEMPTED BRIBERY OF THE TRIBUNAL CHAIRMAN COMPROMISED THE INTEGRITY OF THE ARBITRATION SUCH THAT THIS COURT SHOULD NOT CONFIRM THE AWARD, BUT INSTEAD VACATE IT, AND ORDER A NEW ARBITRATION AT CARGILL'S EXPENSE... 17 A. The Award is Irreparably Tainted Because CarVal Whose General Counsel, Matthew Bogart, is Also Sole Manager of Mexvalo Attempted to Bribe the Tribunal Chairman... 17 B. Cargill s Explanation For the Attempted Bribery Is Not Believable And Further Compels Vacatur... 20 1. Bogart Testified in the Arbitration That He Made all CarVal Legal Hiring Decisions, Yet Claims In an Affidavit Filed to Deny the Bribery Attempt That, This One Time, He Had Nothing to do With the Decision to Hire the Tribunal Chairman s Law Firm... 20 2. Cargill Claims It Hired John Quinn, Head of Quinn Emanuel and the Chairman s Most Senior Supervisor, For a Corporate Governance Matter, But Neither He, Nor His Firm, Are Known for Corporate Governance Expertise... 20 II. EVEN IF THE TRIBUNAL HAD BEEN IMPARTIAL, ITS ERRONEOUS AWARD OF DAMAGES WITHOUT ANY EVIDENCE THAT MEXVALO WAS ACTUALLY DAMAGED REQUIRES VACATUR OF THE AWARD... 23 A. Cargill Presented No Evidence That Mexvalo Had an Obligation to Pay for the Professional Fees That Represent Its Purported Damages...23 B. Cargill Presented No Evidence That Mexvalo Actually Paid the Professional Fees That Represent Its Purported Damages..24 CONCLUSION... 25 ii 2 of 30
TABLE OF AUTHORITIES Cases ACN Digital Phone Serv., LLC v. Universal Microelectronics Co., LTD, 115 A.D.3d 602 (1st Dep t 2014)... 18 Disston Co. v. Aktiebolag, 176 A.D.2d 679 (1st Dep t 1991).... 18 Douglas Elliman, LLC v. Parker Madison Partners, Inc., 45 A.D.3d 252 (1st Dep t 2007).... 19 Goldfinger v. Lisker, 68 N.Y.2d 225 (1986)... 18 Halligan v. Piper Jaffray, Inc., 148 F.3d 197 (2d Cir. 1998)... 23, 25 Iran Aircraft Indus. v. Avco Corp., 980 F.2d 141 (2d Cir. 1992)... 18 Matter of Catalyst Waste-to-Energy Corp. of Long Beach (City of Long Beach), 164 A.D.2d 817 (1st Dep t 1990)... 19 Peckerman v. D & D Associates, 165 A.D.2d 289 (1st Dep t 1991)... 23, 25 See Corporacion Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex Exploracion Y Produccion, No. 13-4022, 2016 WL 4087215 (2d Cir. Aug. 2, 2016)... 18 Rules New York CPLR 7511... 18 New York CPLR, Art. 75... 18 New York CPLR 7510... 22 Treatises Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention)... 17, 23 iii 3 of 30
Inter-American Convention on Internation Commercial Arbitration (the Panama Convention)... passim iv 4 of 30
PRELIMINARY STATEMENT Respondent Desarrolladora Farallon S. de R.L. de C.V. ( Farallon or Respondent ) respectfully requests that this Court deny the petition to confirm the August 15, 2016, Final Award (the Award ) in the arbitration (the Arbitration ) between Farallon and Cargill, Inc. ( Cargill ) subsidiary Mexvalo, S. de R.L. de C.V. ( Mexvalo or Petitioner ), and cross moves that the Award be vacated pursuant to Section 7510 of the Civil Practice Law and Rules ( CPLR ), the Inter-American Convention on International Commercial Arbitration (the Panama Convention, codified at 9 U.S.C. 301 07), and Sections 9, 207, and 302 of the Federal Arbitration Act ( FAA, 9 U.S.C. 1, et seq.). The attempt by Mexvalo to bribe the Chairman of the Arbitral Tribunal and its failure to provide evidence in support of its damages warrant that this Court not only refuse to confirm the Award, but vacate it. While a key arbitration case involving a critical dispute between the parties was fully submitted pending decision, Cargill astonishingly attempted to influence the decision of the Tribunal by bribing the Tribunal s Chairman. They did so by hiring the law firm where the Chairman is a partner for lucrative, ongoing legal work in Asia and more shocking still specifically requesting that the Chairman himself work on (and therefore be credited in part) for the matters. Cargill staged this desperate and ethically bankrupt maneuver at a time of precarious vulnerability in their case there were motions to dismiss their affiliate s claims in the arbitration due to fraud and lack of evidence, and the record submitted was devoid of any evidence to support its damages claims, both legally and factually. Against this backdrop, Cargill made an 1 5 of 30
overture to recruit the Chairman to Cargill s cause through the back door by appealing to the Chairman s own financial self-interest. Cargill s conduct in doing so is ethically improper, legally sanctionable, and perhaps even criminal. The only equitable resolution is for the Court to vacate the Award and order a new arbitration to take place before a new and entirely different arbitral tribunal panel paid for by Cargill. In the alternative, if the Court declines to grant such relief, Farallon requests at a bare minimum that it grant discovery on the attempted bribery and fraud. The attempted bribery occurred after the Hearing in the Arbitration and while an award was pending. Mexvalo s sole manager, Matthew Bogart, acting through a Cargill affiliate of which he is General Counsel, CarVal Investors, LLC ( CarVal ), helped to engineer an offer by CarVal to retain the law firm of the Chairman, Quinn Emanuel Urquhart & Sullivan, LLP ( Quinn Emanuel ). The offer involved potentially highly lucrative work in Asia, where Cargill, the nation s largest privately held company, has extensive interests. Quinn Emanuel, on the other hand (which CarVal had never before hired), has a small Asian presence, though that firm has been trying to develop its business there. Bogart and CarVal later testified that they sought to retain Quinn Emanuel s founding partner John Quinn as corporate governance counsel. Yet neither Quinn nor his firm is known for expertise in that practice area, let alone such expertise in Asia. The facts even strongly suggest that, to make sure that the Chairman was incentivized, Cargill went so far as to request the Chairman s personal involvement in the representation, which not coincidentally involved his home country of Singapore. Compounding the attempted bribery was Mexvalo s failure to present any 2 6 of 30
evidence in the Arbitration that it was damaged. Farallon s counsel highlighted this during closing arguments and two of the arbitrators, including the Chairman himself, commented on this lack of evidence (before CarVal s attempted bribe) and this complete absence of proof was the subject of a post-hearing motion to dismiss at the exact time when CarVal attempted to bribe the Chairman. Mexvalo claimed that Farallon s alleged misconduct required it to incur substantial fees for lawyers and other professionals. Yet Mexvalo presented no evidence demonstrating its obligation to pay these fees. Nor did it present any evidence that it actually paid anything. Indeed, the only piece of so-called evidence presented by Mexvalo shows that two other entities, non-parties to the arbitration, paid the vast majority of the claimed fees. Therefore, Mexvalo failed to meet its burden to sustain entitlement to a damages award. The malfeasance in the Arbitration is a recent episode in a years-long, illegal effort by Cargill, its financial services entity Cargill Financial Services International, Inc. ( Cargill Financial ), and their affiliates (collectively nicknamed by Cargill employees the Cargill Group ), including Mexvalo and hedge fund CarVal, to seize a valuable property from Farallon. Their successful plan has been to deprive Farallon, a familyowned Mexican real estate development company, of any control over or access to Farallon s long-time project a joint venture between Farallon and Cargill, a five-star luxury resort hotel called The Resort at Pedregal (the Resort ) in Baja California del Sur, Mexico. Farallon s controlling family has owned the land where the Resort was built for generations, began developing the project with Cargill over a decade ago, remains the majority owner of the Resort, and worked for years to develop the project. 3 7 of 30
Multiple litigations arose out of this misconduct, including the Arbitration. There Was No Evidence That Petitioner Mexvalo Was Actually Damaged Mexvalo claimed in the Arbitration that it was harmed by what it alleged was Farallon s misconduct and that, in response, Mexvalo and other Cargill Group members were forced to spend fees on lawyers, accountants, and industry professionals. Yet Mexvalo presented no documents showing it was obligated to pay for any of these services. It also presented no records of payments showing that it actually did pay anything, or was damaged in any way. Indeed, Mexvalo s counsel admitted at the Arbitration hearing (the Hearing ) that Mexvalo as well as Resort operating entity Hoteles Del Cabo S. de R.L. de C.V. ( Hoteles ), on whose behalf Mexvalo claimed damages and which shares a Sole Manager, Matthew Bogart, with Mexvalo likely had not actually made any of the payments that Mexvalo claimed: CHAIRMAN CHENG:... [W]hen you say wire transfers, would the wire show the money going from Mexvalo to Hoteles or the money from Mexvalo to the legal firm of Mexvalo to Hoteles to the legal firm? MEXVALO COUNSEL: I m not I don t know off the top of my head. And to be candid, since Mexvalo has the same problem as Hoteles, it doesn t have any any assets. It doesn t have any cash, and some of the money might have come from Cargill Financial. (Mar. 7, 2016, Hearing Transcript, ( Mar. 7 Tr. ), Ex. A, at 317:23 318:10 (emphasis added).) 1 The closest thing to evidence of Mexvalo s payment obligation or actual 1 All Exhibits cited herein are attached to the Affirmation of Paul M. Tarr in Support of Respondent s Memorandum of Law in Opposition to Confirmation of Award and in Support of Vacatur of Award, dated October 11, 2016. 4 8 of 30
payment was testimony of its Sole Manager, Bogart, through a chart attached to his witness statement. Ten days after his testimony, Mexvalo brazenly sought to introduce a revised version of that same chart during its closing, prompting Chairman Cheng to note Bogart s failure to provide the amended chart during the two-week Hearing, when Bogart could have been cross examined. Chairman Cheng remarked, [t]here hasn t been any application to put [revised Appendix A] into evidence. (Mar. 18, 2016, Hearing Transcript, Ex. B, at 2128:3 5.) And even that amended chart, which purports to list the Responsible Party that supposedly paid (for invoices never seen, and by way of checks and wires never seen), lists other Cargill entities not Mexvalo as responsible for all but $476,653 of the $6,114,810 in claimed (and, eventually, awarded) damages, an amount less than the arbitration fees the parties had to pay. None of these other Cargill entities were parties to the Arbitration. Cargill s Attempt to Bribe the Tribunal Chairman While the Award and Farallon s motions to dismiss were pending, and after all evidence could be submitted (and with still no evidence of damages to Mexvalo), the Cargill Group attempted to bribe the Chairman of the Tribunal. It did this by trying to hire the Chairman s law firm for lucrative, ongoing work in Asia involving the Chairman s home country of Singapore for Cargill Group member CarVal, of which Bogart is General Counsel. Bogart, who as Mexvalo s Sole Manager was also its chief witness at the Hearing, is as expected of a General Counsel responsible for CarVal s global legal hiring. (See Selected Webpages from CarVal Website, Ex. C, 1). Bogart also confirmed his oversight of CarVal legal hiring in his arbitration testimony, describing 5 9 of 30
his role at CarVal as including overseeing the company s global legal and compliance functions. (Witness Statement of Matthew Bogart, dated Jan. 21, 2016, ( Bogart Statement ), Ex. D, 4.) And again on September 8, 2016, during his deposition in a related action, he acknowledged his responsibility for legal hiring decisions: Q: Is there anyone at Cargill Inc. or the [Cargill Managed Account Committee] we ve heard that name come up here that decides which lawyers get hired for these kinds of matters? A: They would rely on us to to make those decisions. (Transcript of Deposition of Matthew Bogart, dated Sept. 18, 2016, Ex. E, at 88:19 24.) On June 16, 2016, Chairman Tai-Heng Cheng disclosed to the parties that Bogart s CarVal sought to hire Cheng s law firm, Quinn Emanuel, for work in Asia and requested the parties consent. Prior to that, the Chairman had not disclosed any conflicts. Farallon had not objected to the Chairman s appointment in fall 2015, by which time Farallon had selected the Hon. Bernard J. Fried (Ret.) as one of the arbitrators. Mexvalo selected Cecilia L. Fanelli, Esq., of Steptoe & Johnson, LLP. Farallon had respectfully objected to Ms. Fanelli s appointment because she had been a partner in the law firm that was (and remains) Cargill s litigation counsel in all litigation and arbitration taking place in the United States relating to the Resort, and, for that reason, had been disqualified as an arbitrator in a related ICC arbitration between Mexvalo and the Resort s former manager. The ICC denied Farallon s challenge and accepted Mexvalo s nomination of Ms. Fanelli. Judge Fried and Ms. Fanelli then selected Cheng. To be sure, in retaining Chairman Cheng s law firm, CarVal specifically 6 10 of 30
requested his personal involvement in the new assignment. Chairman Cheng wrote to the parties that a lawyer from another office of my law firm later revealed to be Quinn Emanuel founding partner John Quinn himself has asked for my help in the matter at issue in the retention, given my particular knowledge of that country, later shown to be Cheng s home country of Singapore. (Email from Dr. Tai-Heng Cheng to the Parties, dated June 16, 2016, ( Cheng Email ), Ex. F, at 1.) Farallon complained to the ICC of the decision by Bogart to hire the Chairman s firm while the Tribunal was still deciding the Award. Cargill filed a response, including contradictory affidavits from Bogart and Cargill s North American General Counsel of Global Law, Holly S.A. Eng. In her affidavit, Eng stated that she personally contacted John Quinn, Cheng s most senior supervisor. While ICC arbitrations are notoriously expensive, and the Arbitration may have yielded fees in the hundreds of thousands for Quinn Emanuel, Cargill likely has an enormous litigation budget, in the many millions annually. And Quinn Emanuel s presence in Asia is nascent (many partners there continue to work on U.S. based litigation) such that obtaining Cargill as a client for Asian litigation would be a huge boon for even an established, successful firm like Quinn Emanuel. Additionally, Eng s assertions in her responsive affidavit strain belief. Despite the fact that Bogart is the general counsel of CarVal, and that he has even acknowledged under oath, repeatedly, that he makes legal hiring decisions for CarVal, Eng stated in her affidavit, I recommended the retention of Quinn Emanuel. Mr. Bogart had no knowledge of or input into this recommendation. (Affidavit of Holly S.A. Eng, dated June 30, 2016, ( Eng Aff. ), Ex. G, 3.) Eng then claimed that Cargill senior executives 7 11 of 30
sought out Quinn for a corporate governance matter in Singapore notwithstanding that Quinn is not known for corporate governance, nor the purported coincidence that Singapore is Cheng s home country, claiming that [t]he request to engage Quinn Emanuel came to me from CarVal s Board. (Eng Aff., Ex. G, 7 (emphasis added).) Protesting a bit too much, Ms. Eng repeats, Mr. Bogart was not consulted on recommending counsel or the choice of Quinn Emanuel. (Eng Aff., Ex. G, 9.) Bogart s responsive affidavit makes matters still worse for Mexvalo. Bogart, while admitting that CarVal did approach Quinn Emanuel, claimed that he did not (for reasons still unexplained) make the decision to hire the law firm despite being the individual at CarVal who would ordinarily make such decisions. He also admitted that after supposedly first discovering this extremely serious conflict of interest, Bogart, in his capacity as CarVal s chief legal officer, did not think it necessary to withdraw the engagement. He merely submitted an affidavit denying any misconduct weeks later. This Court Should Deny Confirmation of the Award, While Granting Vacatur Mexvalo and the Cargill-affiliated witnesses knowingly misled the Tribunal under oath about Mexvalo s potential damages. They submitted no evidence showing that Mexvalo was obligated to pay for anything it claimed or that Mexvalo did actually pay for anything at all. Moreover, as Mexvalo itself admits in the one piece of so-called evidence it submitted at the Hearing, the vast majority of the damages claimed by Mexvalo were indeed suffered by Cargill Group members that were not parties to the Arbitration and thus not under the Tribunal s purview. And with Farallon s motions to dismiss still pending, just as Mexvalo realized that it would lose the Arbitration because 8 12 of 30
it had not submitted evidence in its favor, the Cargill Group outright attempted to influence the deciding vote of the Tribunal by hiring the Chairman s law firm by way of the Chairman s most senior supervisor with the prospect of millions of legal fees, for years, in the very part of the world the Chairman s firm was trying to build. The Award should not be confirmed but vacated, pursuant to the Panama Convention, CPLR Section 7510, and the FAA. A new Arbitration should be convened, with all costs to the ICC and for Farallon paid for by Mexvalo. And if this Court is not prepared to vacate the Award, it should permit discovery regarding the bribery attempt. STATEMENT OF FACTS Mexvalo Fails to Establish Damages Mexvalo a Cargill special purpose entity and part of the Cargill Group, which includes the entity that made the bribe attempt here, CarVal commenced the Arbitration on April 22, 2015. (Mar. 7 Tr., Ex. A, at 158:14 20.) Between commencement of the Arbitration and the end of the Hearing, Mexvalo changed its claimed damages several times (providing not one piece of testimony or documentation to explain the repeated changes), but ultimately sought either $6,114,810 or $6,155,544 in damages, broken into five categories: (1) $1,342,304 later revised, without explanation beyond a reference to a technical error, to $476,653 of legal costs incurred by Mexvalo for efforts to counteract Farallon s improper seizure of the Resort (Appendix A to Matthew Bogart s Witness Statement ( Appendix A ), Ex. H; Revised Appendix A to Matthew Bogart s Witness Statement ( Revised Appendix A ), Ex. I); (2) $1,342,309 9 13 of 30
later $1,915,872 of legal costs incurred by Cargill Group member Cargill SOFOM (not Mexvalo) to exercise Lender s rights under [a] Loan Agreement (Appendix A, Ex. H; Revised Appendix A, Ex. I); (3) $2,448,511 later $2,702,219 of legal costs incurred by Resort operating entity Hoteles (also not Mexvalo) to litigate with the Resort s former manager (Appendix A, Ex. H; Revised Appendix A, Ex. I); (4) $903,066 of costs incurred by Hoteles (again, not Mexvalo) to hire professionals to help transition management from the Resort s former manager (Appendix A, Ex. H); and (5) $117,000 of accounting costs for Hoteles (of course, not Mexvalo) to audit and revise the Resort s financial report (Appendix A, Ex. H). The Tribunal delineated these key areas of damages evidence as, respectively, evidence of bills that were paid (category one), evidence that Mexvalo itself paid anything (category two), and evidence that Mexvalo was under a legal obligation to pay (category three). (Final Arbitration Award, dated August 15, 2016, ( Award ), Dkt. No. 2, 189 218.) On the very first day of the Hearing, Mexvalo s counsel admitted that it had not presented evidence as to any of these three categories. First, Mexvalo s counsel admitted that it provided no evidence of category one, bills that were actually paid: ARBITRATOR FRIED: But this is an adversarial process and how can they determine, what is the issue of reasonableness? How would the Respondent be able to challenge a reasonableness or maybe the answer is that your actions are premature. MEXVALO S COUNSEL: No. I think the answer is, is that if we we re not going to simply provide all of our unredacted legal bills to the other side. It would give away, among other 10 14 of 30
things, some of the it would give away all the time and what we re doing in some cases that are still active against Farallon. (Mar. 7 Tr., Ex. A, at 306:20 307:10.) Mexvalo never explained how providing old invoices of work performed in many cases years before would somehow reveal litigation strategies in current actions. Second, Mexvalo s counsel and Bogart Mexvalo s Sole Manager and CarVal s General Counsel repeatedly admitted that Mexvalo provided no category two documents, evidence that Mexvalo itself made any payments at all: FARALLON S COUNSEL: [R]ight now you can t point to any documentary exhibits submitted to the Tribunal in support of your position that Mexvalo made these payments, correct? BOGART: I can t, no. (Mar. 7 Tr., Ex. A, at 305:9 15.) Third, Mexvalo s counsel admitted that Mexvalo failed to provide category three documents, evidence that Mexvalo was under legal obligations to make the payments at issue, and even took a position that it sought to admit no further evidence a position it later contradicted in a belated post-evidence application: ARBITRATOR FRIED: I don t want to be rude. My question is, is there anything in addition to what has already been received by the Tribunal that you are seeking to submit together with in camera or otherwise which relates to either as I use that obligation or you use it standing. MEXVALO S COUNSEL: Sorry. I misunderstood the question. No. On that third category.... [....] 11 15 of 30
ARBITRATOR FRIED: So the short answer is no additional evidence? MEXVALO S COUNSEL: There s no additional evidence in number 3. And number 2 would be no additional evidence under number 2 and showing evidence of payment which we could do by I guess wire transfers, if that s necessary. (Mar. 7 Tr., Ex. A, at 316:14 24, 317:12 19.) Mexvalo s Single, Late-Provided Damages Document Contradicts Prior Testimony Over two months after the Hearing had closed, Mexvalo produced its only document in support of damages. (Post-Hearing Opposition to Claimant s Application and Cross-Application to Dismiss All Mexvalo s Claims ( Cross-Application ), Ex. J, 7.) Mexvalo claimed the document, dated June 2015, was an engagement letter for work by the accounting firm Ernst & Young ( E&Y ) that had taken place from July 2014 through January 2015, and justified $117,000 of work that E&Y had done on behalf of Bogart-controlled Hoteles. (Cross-Application, Ex. J, 5.) It makes no sense that E&Y had performed a seven-month-long accounting project without being engaged, and this discrepancy in the only damages document produced raised serious questions as to Mexvalo s overall damages claims. Despite post-hearing motion practice regarding this very issue (Cross-Application, Ex. J), Mexvalo refused to provide any explanation. (Cross-Application, Ex. J, 19.) Nor did the Tribunal address this discrepancy at all in its 95-page Award. (See Award, Dkt. No. 2.) Huettner s Perjury in the Arbitration on the Cargill Group s Behalf Bogart s improper efforts to advance Cargill s interest in the Arbitration was 12 16 of 30
supported and reinforced by the repeated perjury of Thomas Huettner, the former CarVal Managing Director and Head of Global Real Estate Portfolio Management, and former chief Cargill Group representative to the Resort. (Ltr. From John G. Balestriere to Rocio Digon, Esq. ( ICC Letter ), dated June 23, 2016, Ex. K, 10 11.) At the Hearing, Huettner in a failed attempt to help the Cargill Group by bolstering the credibility of his other assertions perjured himself, twice, in the course of several minutes by denying that he had contacted Farallon Principal Juan Diaz Rivera in an attempt to solicit a percentage of any settlement in this action. (ICC Letter, Ex. K, 11.) Huettner only admitted his lies under cross-examination after being shown emails that he had written. Then without even being asked, Huettner covered for Bogart and went out of his way to testify that no one from the Cargill Group had contacted him. (Mar. 9, 2016, Hearing Transcript ( Mar. 9 Tr. ), Ex. L, at 756:19 773:3.) The perjury was so obvious from Cargill s key representative at the Resort for years that immediately following Huettner s testimony, Chairman Cheng and Judge Fried suggested that Mexvalo consider settling the matter: ARBITRATOR FRIED: Should we take five minutes so [Farallon s counsel] and [Mexvalo s counsel] can talk? CHAIRMAN CHENG: All the rest of the day if you want to talk for that long. (Mar. 9 Tr., Ex. L, at 765:25 766:5) The Attempt by Mexvalo s Sole Manager and Parent Company to Bribe the Tribunal though Mexvalo s Improper Engagement of Quinn Emanuel and the Chairman Prior to June 16, 2016, Tai-Heng Cheng, the Chairman of the Arbitration 13 17 of 30
Tribunal, had no disclosed conflicts. (Chairman Cheng Disclosures, dated August 27, 2015, Ex. M, 2.) In reliance on this representation, Farallon did not object to Cheng s appointment as Chairman. On September 1, 2015, Chairman Cheng was confirmed as President of the Tribunal. (ICC Letter, Ex. K, 3.) The other two arbitrators were former Hon. Bernard J. Fried (Ret.), chosen by Farallon, and Cecilia L. Fanelli, Esq., of Steptoe & Johnson, LLP, chosen by Mexvalo. (Award, Dkt. No. 2, 3-4.) The Hearing was held on March 7 through 18, 2016. (Award, Dkt. No. 2, 64.) On June 16, 2016, nearly three months after the Hearing had concluded, and while two post-hearing motions were pending, Chairman Cheng wrote to the Parties: Dear Counsel: CarVal has approached a lawyer from another office of my law firm to represent CarVal in a completely unrelated dispute, involving different parties from a different industry in a country in Asia. That lawyer has asked for my help in the matter given my particular knowledge of that country. As you know, CarVal is not a party to the present arbitration, nor is it a parent or subsidiary of Mexvallo [sic]. It instead appears to be a subsidiary of Cargill Financial, like Mexvallo [sic]. Although the CarVal matter involves different parties, issues, industries and countries than the present arbitration, out of an abundance of caution I am writing to seek the parties views on whether I may assist my law firm in this other matter. I would be grateful if the parties could let me know your views by the close of business today, or to inform me if more time is needed to provide your views. (Cheng Email, Ex. F, 1.) Particularly unusual in Chairman Cheng s correspondence was his casual reference to CarVal, as not a party to the [ ] arbitration, nor... a parent or subsidiary to Mexvalo. (Cheng Email, Ex. F, 1.) As Chairman Cheng was aware, 14 18 of 30
CarVal General Counsel and Mexvalo Sole Manager Bogart was present each day at the Hearing (Excerpt of Pages from Arbitral Hearing Transcripts, Ex. N), and CarVal was referenced more than 145 times during the course of the Hearing. (Excerpt of Index Pages From Arbitral Hearing Transcripts, Ex. O.) CarVal s Promise of Substantial Legal Work Was a Thinly Disguised Bribe CarVal represents a potential for significant legal work for Quinn Emanuel and great potential benefit for Chairman Cheng. (ICC Letter, Ex. K, 4.) CarVal, according to its website, manages approximately $10 billion in assets. 2 Since its founding in 1987, CarVal has invested $91 billion in 5,300 transactions across 76 countries. 3 Bogart, as CarVal General Counsel, has near total discretion in the selection of firms to handle the legal work arising out of these investments. (ICC Letter, Ex. K, 5.) In addition, CarVal is part of the Cargill Group, and therefore the representation could lead to enormous fees for Quinn Emanuel. (ICC Letter, Ex. K, 5.) Cargill, Inc. had 2015 revenues of over $120 billion, employing approximately 153,000 employees in 67 countries. 4 Cargill, both as a function of its sheer size 5 it is the largest private company in the United States and the volume of fees it potentially could deliver would easily qualify it to rank among Quinn Emanuel s most important clients. (ICC Letter, Ex. K, 5.) 2 CarVal, http://carvalinvestors.com/ (last visited October 11, 2016). 3 Id. 4 Cargill reports fourth-quarter and full-year fiscal 2015 earnings, Cargill, Inc., http://www.cargill.com/news/releases/2015/na31878663.jsp, (last visited October 11, 2016). 5 America s Largest Private Companies 2015, Forbes (Oct. 28, 2015), http://www.forbes.com/sites/andreamurphy/2015/10/28/americas-largest-private-companies- 2015/#26e3a9913095 ( The Minneapolis-based company has only missed the number one ranking twice in the 31 years Forbes has published this list. ). 15 19 of 30
Quinn Emanuel stands to benefit greatly from the Cargill Group s presence in Asia. (ICC Letter, Ex. K, 5.) Despite having over 700 attorneys globally, the firm has only ten attorneys practicing in its two Asia offices in Tokyo and Hong Kong. (Selected Webpages from Quinn Emmanuel Website ( Quinn Emanuel Webpages ), Ex. P, 1.) Three of its six partners in Asia also practice on other continents, leaving at most only three partners fully dedicated to the Asia market. (Quinn Emanuel Webpages, Ex. P, 1-3.) CarVal presented a major opportunity to Chairman Cheng. (ICC Letter, Ex. K, 6.) On July 28, 2016, the ICC rejected Farallon s application to disqualify Chairman Cheng in one sentence, without discussion or explanation. (Ltr. from Rocio Digon, Esq., to the Parties, dated July 28, 2016, Ex. Q, 2.) The Award On August 15, 2016, the Tribunal issued the Award, granting Mexvalo s claims and ordering Farallon to pay Mexvalo $6,114,810 in damages, and denying all of Farallon s counterclaims. (Award, Dkt. No. 2, 293.) The Tribunal further ordered Farallon to pay Mexvalo $270,952.30 for costs and $385,000 for litigation costs. (Award, Dkt. No. 2, 293.) The Award was based entirely on Bogart s testimony and amended Appendix A: as the Tribunal itself noted, the only evidence of the quantum of damages under each heading is the written and oral testimony of Mr. Bogart and a table stating the quantum appended to his witness statement. (Award, Dkt. No. 2, 162.) Continued Malfeasance of Cargill and its Affiliates The Cargill Group s malfeasance has continued past the Arbitration: Farallon recently learned informally, as it was not formally served in violation of Mexican law, 16 20 of 30
that the Cargill Group had secretly engaged in a collusive lawsuit that had the result of allowing the Cargill Group through yet another subsidiary controlled by Bogart immediate full ownership of the Resort, despite the property having still been in foreclosure. (Affirmation of Paul M. Tarr, dated October 11, 2016, 24 27.) These actions improperly circumvented a years-long foreclosure process, and illustrate yet again the Cargill Group s disregard for legal requirements, especially those of Mexico. (Affirmation of Paul M. Tarr, dated October 11, 2016, 24 27.) 6 ARGUMENT I. THE ATTEMPTED BRIBERY OF THE TRIBUNAL CHAIRMAN COMPROMISED THE INTEGRITY OF THE ARBITRATION SUCH THAT THIS COURT SHOULD NOT CONFIRM THE AWARD, BUT INSTEAD VACATE IT, AND ORDER A NEW ARBITRATION AT CARGILL'S EXPENSE. A. The Award is Irreparably Tainted Because CarVal Whose General Counsel, Matthew Bogart, is Also Sole Manager of Mexvalo Attempted to Bribe the Tribunal Chairman. This Court should deny Mexvalo s petition to confirm and, instead, vacate the Award based on the attempted bribery of the Chairman of the Arbitral Tribunal, which irreparably tainted the proceeding. Under the Panama Convention and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, Ex. R), a court may refuse recognition of an award if the arbitral procedure was not in accordance with the agreement of the parties or the law of the country 6 As Farallon was only recently informally informed of these actions as it was not a named party and has not been served it continues to reserve all rights to challenge these actions in Mexico. 17 21 of 30
where the arbitration took place. (New York Convention, Art. V(1)(d), Ex. R.) 7 A court should likewise refuse to enforce an award where a party is denied the opportunity to be heard in a meaningful time or in a meaningful manner. Iran Aircraft Indus. v. Avco Corp., 980 F.2d 141, 146 (2d Cir. 1992) (Article V(1)(b) essentially involves a due process inquiry ). Similarly, a court must vacate an award that deals with a difference not contemplated by or not falling within the terms of the submission to arbitration. (New York Convention, Art. V(1), Ex. R.) Further, under CPLR Article 75, a court shall vacate an arbitral award where a party was prejudiced by fraud or misconduct. CPLR 7511(b)(1)(i). The moving party must show that the arbitrator has abused his discretion... so as to constitute misconduct sufficient to vacate. Disston Co. v. Aktiebolag, 176 A.D.2d 679, 679 (1st Dep t 1991). [Where] the FAA governs, this Court may apply state grounds for vacatur, where they are consistent with the FAA s terms and purposes. ACN Digital Phone Serv., LLC v. Universal Microelectronics Co., LTD, 115 A.D.3d 602, 603 (1st Dep t 2014). New York courts regard the integrity of arbitral proceedings as paramount: it is imperative that the integrity of the process... be zealously safeguarded. Goldfinger v. Lisker, 68 N.Y.2d 225, 230 (1986). Courts have repeatedly vacated arbitration awards where, for instance, an arbitrator seeking additional compensation from parties created the appearance of impropriety. See Matter of Catalyst Waste-to-Energy Corp. of Long Beach 7 Courts construe the New York and Panama Conventions as identical for purposes relevant here. See Corporacion Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploracion Y Produccion, No. 13-4022, 2016 WL 4087215, at *8 (2d Cir. Aug. 2, 2016) ( [D]omestic enforcement of foreign arbitral awards is governed by two international Conventions: the [Panama Convention]... and the [New York] Convention [ ].... There is no substantive difference between the two ). 18 22 of 30
(City of Long Beach), 164 A.D.2d 817, 820 (1st Dep t 1990) (arbitrators requested additional payments from parties). Such a focus on integrity also means that vacatur is proper where both the appearance of bias and resulting prejudice exist. Douglas Elliman, LLC v. Parker Madison Partners, Inc., 45 A.D.3d 252, 252 (1st Dep t 2007). An award rendered in an arbitration whose integrity has been compromised cannot be confirmed. Through its bribery attempt, Mexvalo has made the appearance of impartiality and violated the Arbitration s integrity. Mexvalo s misconduct, which should have resulted in Cheng s immediate recusal, now requires vacatur of the Award. The overture by CarVal and Mexvalo to Chairman Cheng s law firm raised at the very least the strong appearance (if not the reality) of improper financial inducement. The overture forced Chairman Cheng to choose between accepting a retention that could greatly profit the firm where he is a partner, or declining it after CarVal proposed it directly to the Chairman s most senior supervisor, John Quinn. By placing Chairman Cheng in this position, CarVal and Mexvalo deprived Farallon of the possibility of an impartial proceeding by likely causing him to be implicitly or overtly biased. Here, there is and was a substantial prospect of actual, rather than merely apparent, bias. Chairman Cheng expressed clear interest in accepting the proposed retention in his email to the parties, where he (wrongly) suggested that the potential for an improper conflict of interest was slight. (Cheng Email, Ex. F, 1.) But the potential conflict was immense, given the timing of CarVal s overture, the potential value of the retention to Quinn Emanuel, and the web of affiliations between Cargill, CarVal and Mexvalo. And Chairman Cheng surely regarded Farallon s ensuing demand for his 19 23 of 30
recusal unfavorably, adding to the prospect of at least unconscious bias. Mexvalo s attempted bribery of the Chairman warrants vacatur of the Award and a new arbitration, paid for by Mexvalo, or if not, discovery regarding the attempted bribery. B. Cargill s Explanation For the Attempted Bribery Is Not Believable And Further Compels Vacatur. 1. Bogart Testified in the Arbitration That He Made All CarVal Legal Hiring Decisions, Yet Claims In an Affidavit Filed to Deny the Bribery Attempt That, This One Time, He Had Nothing to do With the Decision to Hire the Tribunal Chairman s Law Firm. Bogart s claim that he was not involved in the decision to hire Quinn Emanuel strains credulity. As CarVal s General Counsel, he is admittedly responsible for that entity s global legal hiring. However, two weeks after Chairman Cheng disclosed the proposed representation, Bogart and another Cargill lawyer submitted responsive affidavits that contradict these other sworn statements. Bogart admitted that CarVal approached Quinn Emanuel and contacted John Quinn. But he claimed that, for unexplained reasons, he did not, this once, make the hiring decision. This incredible claim is echoed in the responsive affidavit of Holly Eng, Cargill s North American General Counsel of Global Law, who stated, despite Bogart s hiring responsibilities, that he had no knowledge of or input into this recommendation. (Eng Aff., Ex. G, 3.) Their not credible testimony further compels the rejection of and vacatur of the Award. 2.Cargill Claims It Hired John Quinn, Head of Quinn Emanuel and the Chairman s Most Senior Supervisor, For a Corporate Governance Matter, But Neither He, Nor His Firm, Are Known for Corporate Governance Expertise. Mexvalo s claim that CarVal sought out John Quinn for a corporate governance matter also is not believable, as neither he nor his firm are known for such expertise. 20 24 of 30
Despite the fact that Quinn is a leading American trial lawyer, a Google search of the terms John Quinn and corporate governance produces zero relevant hits. (See Affirmation of Paul M. Tarr, dated October 11, 2016, 22.) This is intentional: Quinn Emanuel, under John Quinn s guidance, markets itself as specializing in litigation. Of the 22 practice areas listed on its website, the closest to a non-litigation practice area is its White Collar and Corporate Investigations practice. (Quinn Emanuel Webpages, Ex. P, 4 19.) And even in this area, Quinn Emanuel focuses on the litigation angle, boasting that its attorneys have litigated against virtually every enforcement agency and that its lawyers have tried literally hundreds of criminal cases to verdict. (Quinn Emanuel Webpages, Ex. P, 5.) For CarVal to have chosen it for corporate governance when it appears never to have worked with Quinn Emanuel before would have been unusual. But given the timing of this choice, in an assignment that came to Chairmen Cheng of over 700 lawyers at that firm despite him also having no apparent experience in corporate governance work, focusing instead on international arbitration matters is frankly incredible. The Court should decline to confirm, and instead vacate, the Award. 3. Cargill Has Substantial Interests in Asia, Yet Chose Quinn Emanuel, Which Has a Minimal Asian Presence, For What it Claims was a Corporate Governance Assignment Which Involved Singapore, the Chairman s Home Country While the Award and Motions to Dismiss Were Pending. Not only is Quinn Emanuel an unlikely choice for governance work, it is also an unlikely choice for work in Asia. Cargill, as a company with substantial interests in Asia, would both know this and have far more likely firms to turn to for such work. Despite having over 700 attorneys globally, Quinn Emanuel has only ten 21 25 of 30
attorneys currently practicing in its three Asian offices in Tokyo, Hong Kong, and Shanghai, and the sole attorney practicing in its Tokyo office also practices in Los Angeles. (Quinn Emanuel Webpages, Ex. P, 1.) Three of its five partners in Asia also practice on other continents, leaving at most only two partners dedicated to the Asia market. (Id.) Given Quinn Emanuel s limited presence in Asia, it would seem unlikely to have landed CarVal as a client there absent CarVal seeking to obtain other benefits as well. (Id.) Cargill, by contrast, for years has housed its Asia-Pacific regional hub in Singapore, which alone maintains the headquarters of its international iron ore and steel activities, its oil palm plantations business, and its structured finance business unit, among others. (Selected Webpages from Cargill Inc. Website, Ex. S, 1-4). And even if CarVal had, simply by coincidence, chosen Quinn Emanuel for a corporate governance matter in Asia without any intent towards Chairman Cheng, there are several more natural choices at Quinn Emanuel for such an assignment, such as an attorney actually in Asia. (Quinn Emanuel Webpages, Ex. P, 1 3). Despite their primary focus on U.S. matters, two of Quinn Emanuel Asia partners practice in Singapore. (Quinn Emanuel Webpages, Ex. P, 2 3). Taken alone with the timing involved, CarVal s approach to Quinn Emanuel for either a corporate governance matter or one involving Asia would be suspicious. But combined, the chances of such a coincidence beggars belief. The most likely explanation is that CarVal s approach to Quinn Emanuel for this work, at this time, involving Chairman Cheng is that this was an attempt to influence the Chairman. At least the appearance of partiality is enormous. The Panama Convention, CPLR Section 7510 and 22 26 of 30
justice require that this Court both decline to confirm and vacate the Award. II. EVEN IF THE TRIBUNAL HAD BEEN IMPARTIAL, ITS ERRONEOUS AWARD OF DAMAGES WITHOUT ANY EVIDENCE THAT MEXVALO WAS ACTUALLY DAMAGED REQUIRES VACATUR OF THE AWARD. Even if Cargill s CarVal and Mexvalo had not attempted to bribe Chairman Cheng, this Court should still order vacatur of the Award for at least two more reasons: first, Mexvalo failed to support its damages claim with any competent evidence; and second, the Arbitral Tribunal improperly denied Farallon its due process right to be heard regarding damages, in violation of Article V(1)(b) of the New York Convention. A. Cargill Presented No Evidence That Mexvalo Had an Obligation to Pay for the Professional Fees That Represent Its Purported Damages. At the start of the Hearing, Mexvalo requested damages amounting to $6.2 million, claiming Farallon s misconduct forced it to spend fees on lawyers and other service providers. Yet Mexvalo presented no demands for payment showing it was obligated to pay for any such professional services, and its counsel admitted at the start of the Hearing that it would present none. (Cross-Application, Ex. J, 4.) Mexvalo s failure to provide competent evidence in support of its damages claim is dispositive. An arbitration award should be vacated where the argument that the evidence was insufficient demonstrates that there is no proof whatever to justify the award so as to render it entirely irrational. Peckerman v. D & D Associates, 165 A.D.2d 289, 296 (1st Dep t 1991). And where an arbitrator manifestly disregards the evidence, a court may vacate the award. See Halligan v. Piper Jaffray, Inc., 148 F.3d 197, 204 (2d Cir. 1998) ( the arbitrators [t]here manifestly disregarded the law or the evidence or both ). Instead of competent evidence, Mexvalo proffered a single chart Appendix A to 23 27 of 30
Bogart s witness statement unsupported by any documents. (Appendix A, Ex. H.) Mexvalo later amended this chart after the time for cross examination ended greatly changing calculations regarding who the purported Responsible Party was. And then the only other document that it did produce, after the Hearing, openly contradicted Bogart s Appendix A, showing an apparent date for audit work as much as a year after Bogart claimed. (Revised Appendix A, Ex. I.) Whether the cause of this discrepancy was negligent or willful is unclear, as Mexvalo refused to provide additional information and the Tribunal did not require it. But what is certain is that, as a party seeking damages, Mexvalo had the burden of establishing those damages. (Award, Dkt. No. 2, 86.) No reasonable factfinder could have found that Mexvalo established any damages on its evidence presented, let alone over $6.2 million, with Cargill itself admitting by way of Bogart s amended chart that more than 90% of those damages were incurred by Cargill Group entities other than Mexvalo. (Appendix A, Ex. H.) Mexvalo failed to present any sufficient evidence that it had an obligation to pay the fees that it claimed as damages. B. Cargill Presented No Evidence That Mexvalo Actually Paid the Professional Fees That Represent Its Purported Damages. Mexvalo not only failed to present evidence that it was obligated to pay the fees at issue, it presented no checks, wires, or records of payments to show that that it paid anything at all. On the very the first day of the Hearing, Mexvalo s counsel and Bogart admitted that Mexvalo provided no such evidence. (See March 7 Tr., Ex. A, at 305:9 15.) The Tribunal erred in disregarding Mexvalo s admitted inability to produce competent 24 28 of 30
evidence of payments, and improperly relied on the amended appendix and counsel s sworn assertions regarding that unsupported exhibit. This constituted a manifest[] disregard[] of the evidence, Halligan, 148 F.3d at 204, which render[ed] [the Award] entirely irrational, Peckerman, 165 A.D.2d at 296. The lack of evidence warrants vacatur. Again, Mexvalo presented absolutely no evidence that any of the $6.2 million that it claimed in damages had actually been paid. (Cross-Application, Ex. J, 7.) Mexvalo s counsel conceded this when questioned by the Tribunal. (March 7 Tr., Ex. A, at 3:16:14 24, 317:12 19.) Even Bogart, whose testimony constituted Mexvalo s entire basis for damages, could not say that payments had been made or what entity made them. (Mar. 7 Tr., Ex. A, at 305:9 15.) No rational factfinder could find that Mexvalo was entitled to damages without manifestly disregarding the evidence before it (or lack thereof). This Court should both decline to confirm and vacate the Award. CONCLUSION The Cargill Group s Mexvalo irreparably tainted the Arbitration by attempting to bribe the Tribunal Chairman with the temptation of substantial and prestigious ongoing legal work. More, it utterly failed to present any competent evidence of its damages, relying solely on the testimony of its own Sole Manager, who both admitted that he had no knowledge of payments made and was contradicted by one of his own documents as to the timing and existence of damages. No reasonable arbitral body could have rendered the Award that the Tribunal did here. The Court respectfully should refuse to confirm the Award, and instead vacate it. Or, if the Court declines to grant such relief, the Court respectfully should grant Farallon discovery on Mexvalo s attempted bribery. 25 29 of 30
Dated: New York, New York October 11, 2016 By: John G. Balestriere Matthew W. Schmidt Paul M. Tarr BALESTRIERE FARIELLO 225 Broadway, 29th Floor New York, New York 10007 Telephone: (646) 912-8463 Facsimile: (212) 208-2613 john.balestriere@balestrierefariello.com matthew.schmidt@balestrierefariello.com paul.tarr@balestrierefariello.com Attorneys for Respondent 26 30 of 30