Soaring Wind Energy v. Catic USA Inc
US Fifth Circuit Court of Appeals|January 7, 2020
The attached appeal between Soaring Wind Energy, LLC and Catic USA Incorporated affirms the arbitration panel's decision to award Soaring Wind $62.9 million USD against Catic USA and divest Catic USA's shares in Soaring Wind Energy, LLC. Catic USA had entered into an agreement with Tang Energy Group in 2007 to create Soaring Wind Energy, LLC, a shared company acting as a vehicle for wind energy marketing and project development in the United States. Catic USA's affiliates breached the Soaring Wind agreement by investing $50 million USD in wind projects unaffiliated with Soaring Wind's activities. The court affirmed the arbitration panel and district court's decision to hold Catic USA liable for the potential losses accrued from the investment in unrelated projects and supported the forced divestment of Catic USA from Soaring Wind, LLC.
The attached appeal between Soaring Wind Energy, LLC and Catic USA Incorporated affirms the arbitration panel's decision to award Soaring Wind $62.9 million USD against Catic USA and divest Catic USA's shares in Soaring Wind Energy, LLC. Catic USA had entered into an agreement with Tang Energy Group in 2007 to create Soaring Wind Energy, LLC, a shared company acting as a vehicle for wind energy marketing and project development in the United States. Catic USA's affiliates breached the Soaring Wind agreement by investing $50 million USD in wind projects unaffiliated with Soaring Wind's activities. The court affirmed the arbitration panel and district court's decision to hold Catic USA liable for the potential losses accrued from the investment in unrelated projects and supported the forced divestment of Catic USA from Soaring Wind, LLC.
Seeking to vacate the award, Catic USA and its Chinese affiliates advance three theories: (1) The district court erred by confirming the award without first reviewing the arbitrators’ power over Catic USA’s Chinese affiliates; (2) the arbitration panel was improperly constituted; and (3) the award includes speculative or punitive damages rendering it unenforceable.
A. Catic USA made its proverbial bed; therein it must lie. The company signed an agreement specifying that the actions of its affiliates could constitute its own breach. Whether Catic USA’s non-signatory affiliates themselves be subject to the arbitration is irrelevant: Catic USA “assum[ed] the obligation of its affiliates’ performance.”26 The arbitration panel reasonably found that a breach had occurred; given the deference owed to the panel,27 we decline to disturb that finding.
B. As in this case, Catic USA submits, “the formation of a stacked, unfair arbitration panel is an absurd result to which no reasonable party would ever agree.” But the risk of such an occurrence is precisely within the plain terms to which Catic USA agreed. Catic USA urges this court not to choose from among competing, reasonable interpretations but to discard the plain text of the Agreement out of so-called fairness. “It is not the court’s role to rewrite the contract between sophisticated market participants, allocating the risk of an agreement after the fact, to suit the court’s sense of equity or fairness.”29 One must assume that Catic USA did not expect to be outnumbered in any dispute falling under the Agreement; that its expectations were frustrated does not render the Agreement absurd or unfair.
Catic USA’s Chinese affiliates claim that the arbitration proceedings violated due process, reasoning that because the two sides appointed an un- equal number of arbitrators, the panel’s decision could not have been impartial. That contention, when taken to its logical conclusion, would require this court to invalidate any arbitral award not issued by an evenly appointed panel.
We reject that notion. The Agreement was not a contract of adhesion but a bespoke deal made between extremely sophisticated parties. The Agreement did not inherently favor one party or another; it just so happened that Catic USA was outnumbered. The agreed-upon selection process was followed to the letter: Catic USA and Thompson selected the arbitrators and received the process they were due.
C. Having found that Catic USA breached the agreement by investing (via an affiliate) at least $50 million in wind-farm development in an outside entity, the arbitration panel was tasked with estimating claimants’ resulting lost profits, if any. The panel found that Catic USA’s affiliated AVIC group would invest in any given project only if it anticipated a minimum 15% return; it then discounted that return to determine the present value of the lost profits.
Catic USA does not contest that AVIC’s anticipated rate of return was 15% or that the panel employed an appropriate discount rate; instead, it attacks the panel’s assumption that AVIC’s investment did (or would) generate profits. It is true that, although the amount of lost profits may be estimated, claimants generally “must show that there would [have been] some future profits” but for the breach. Id. at 1133 (emphasis added). But in this case, Catic USA has refused to provide the relevant information, and it was thus within the arbitration panel’s authority to infer that AVIC’s investment was indeed profitable. See id. at 1131 n.132 (noting that damages may be inferred when uncertainty results from the breaching party’s own actions).
Catic USA’s theory that the divestment effectively doubles the damages—and is therefore substantively indistinguishable from punitive damages—is well taken, but, given the broad scope of “equitable” relief,32 combined with the deference we must grant the arbitration panel,33 we decline to set aside the divestment as
punitive and not equitable.
The judgment confirming the arbitration award is AFFIRMED.
