U.S. Court Affirms Dismissal of Arbitration Bribery Claims for 'Slop Oil'

The U.S. Court of Appeals for the Fifth Circuit has issued a significant decision affirming the dismissal of a case brought against Fulbright & Jaworski L.L.P. client, Nigerian National Petroleum Corp. (NNPC), and three prominent international arbitrators. The case was filed by Gulf Petro Trading Company Inc., Petrec International Inc., James S. Faulk and James W. Faulk (collectively, Gulf Petro).

In 1998, Petrec initiated an arbitration in Geneva against NNPC, seeking damages under a joint venture agreement regarding recovery of slop oil from NNPC's operations. NNPC argued, however, that Petrec was not legally incorporated at the time of the joint venture agreement or when the arbitration was commenced and thus did not have legal capacity to pursue the arbitration. The tribunal accordingly issued a final award in NNPC's favor.

Petrec challenged the final award in Swiss federal court, but did not prevail. Petrec and its affiliate, Gulf Petro, then filed suit in the U.S. District Court for the Northern District of Texas, asking the court to recognize a partial award issued by the tribunal but to set aside or modify the tribunal's final award. The court dismissed the case for lack of subject matter jurisdiction, holding that a U.S. court cannot set aside a foreign arbitral award. The U.S. Court of Appeals affirmed the dismissal.

Gulf Petro again brought suit in 2005. This time, in the Eastern District of Texas, alleging bribery and corruption in the arbitration panel's determination of the final award. Gulf Petro asked the court to nullify the final award and award damages exceeding several hundred million dollars. Its claims included causes of action under civil RICO, the Texas deceptive trade practices act, fraud, and civil conspiracy. NNPC categorically denied any wrongdoing or bribery, and moved to dismiss the case. The court granted NNPC's motion and entered final judgment in favor of NNPC. The court reasoned that Gulf Petro's claims constituted an improper attack on a foreign arbitral award. Gulf Petro appealed the decision.

On Jan. 7, 2008, the court of appeals affirmed the lower court decision, again in favor of NNPC. The court concluded: "Put simply, Gulf Petro's entire complaint is an attempt to set aside the Final Award and replace it with a modified award. The [New York] Convention dictates that a United States court, sitting in secondary jurisdiction, lacks jurisdiction to consider such an action."

The Fulbright team was led by Frank Jones and Kevin O'Gorman. Associates Andrew Friedberg, Catina Haynes and Marlene Losier assisted with the case.

"We are pleased with the Fifth Circuit's decision and believe this lawsuit was properly dismissed," O'Gorman said. "We have said all along that Gulf Petro's complaint constituted an impermissible attack on the Swiss arbitration panel's decision."