ARCHER-DANIELS-MIDLAND COMPANY and ADM LATIN AMERICA, INC., Plaintiffs,
REGIS PAILLARDON, Defendant.
MICHAEL P. McCUSKEY, District Judge.
This case is before the court for ruling on the Petition to Vacate Arbitration Award (#1) filed by Plaintiffs, Archer-Daniels-Midland Company and ADM Latin America, Inc., and related Motions. This court has carefully reviewed the arguments of the parties and the lengthy exhibits provided by the parties. Following this careful and thorough review, this court rules as follows: (1) Plaintiffs' Motion to File Oversize Reply Brief (#18) is GRANTED; (2) Plaintiffs' Motion for Hearing (#19) is DENIED; (3) the Motion to Cite Newly-Issued Authority (#22) filed by Defendant Regis Paillardon is GRANTED; and (4) ADM's Petition to Vacate Arbitration Award (#1) is DENIED.
ADM, a Delaware corporation headquartered in Decatur, Illinois, is one of the largest agricultural processors in the world. In the late 1990s, ADM began exploring opportunities to expand its business to Latin America. Two contracts were negotiated in late 1998 and early 1999 in order to expand ADM's business into Venezuela. The Joint Venture Agreement (JVA) established a joint venture, the object of which was to sell ADM commodities in Venezuela, and established a new entity, called ADM de Venezuela, C.A. (ADMV), to perform marketing functions in Venezuela. The JVA provided that ADMV was a "corporate joint venture" formed to engage in the "Business" which was defined as "the merchandising of certain mutually agreed upon commodities and products in Venezuela." Originally, Dr. Jorge Fernandez and his wife Elizabeth Fernandez held half of the shares of ADMV and ADM held the other half of the shares. ADM subsequently transferred its interest in ADMV to ADM Latin, a wholly owned subsidiary of ADM. The JVA expressly stated that the business would be conducted by ADM Latin on a "nonexclusive" basis, and no provision of the agreement created an obligation on the part of ADM Latin to sell ADM commodities and products to Venezuelan customers with the assistance of ADMV. ADMV itself did not make any sales; it merely facilitated the sales of ADM Latin.
The second agreement, the Commission Agreement (CA), governed the distribution of profits generated by sales ADM Latin made to Venezuelan customers with the assistance of ADMV. Under the CA, ADM Latin agreed to pay the Fernandez parties 50% of the profits of ADM Latin arising from the conduct of the business. ADM Latin sent commission payments directly to the Fernandez parties and not to ADMV.
Both written agreements contained merger clauses which stated that they set forth the entire agreement and understanding between the parties. The JVA contained an arbitration provision, which stated that "[a]ny dispute arising out of this Agreement shall be settled by binding arbitration conducted by a single arbitrator in accordance with the Commercial Rules of the American Arbitration Association." The JVA stated that the place of arbitration would be Miami, Florida, that the arbitration would be conducted in English and that the Arbitrator would apply "the law that a Venezuelan court would apply." The JVA also stated that the agreement "shall continue in force indefinitely unless terminated earlier as provided in Section 7, " which allowed ADMV shareholders to terminate the JVA "at any time by a writing signed by each of them." The CA provided that it would remain in effect so long as the JVA remained in effect and also stated that it would be governed by and interpreted in accordance with the law of the State of Delaware.
In May 1999, Regis Paillardon, a citizen of France who had connections in the Venezuelan market, purchased the interest of Elizabeth Fernandez in ADMV and acquired a 10% stake in ADMV. Paillardon was the General Manager of ADMV and the Director of Operations in Venezuela of ADM International, Ltd. In his role with ADM International, Ltd., Paillardon served as a day-to-day contact with ADM Latin regarding sales to Venezuela and managed the administrative details of ADM Latin's Venezuelan transactions. Because of this position, Paillardon did not collect any profits for his 10% share. From 1999 to 2005, ADM paid commissions to the Fernandez parties as agreed under the CA.
In 2005, Dr. Fernandez decided to leave the business and Paillardon then purchased his shares in ADMV. Paillardon became ADM Latin's sole joint partner and succeeded to Dr. Fernandez's rights under the CA. At that time, Paillardon held a 50% interest in ADMV and resigned his position with ADM International, Ltd. Paillardon then began receiving his share of the profits of the joint venture. In November 2007, Paillardon sold 20% of his 50% interest to Olivier Terrase. After that date, Paillardon was entitled to 40% of the profits and Terrase was entitled to 10% of the profits. The joint venture was highly successful and, over its lifespan, made gross sales in excess of $1 billion. During the four years in which Paillardon was entitled to a share of the profits as a partner in the joint venture, his share of the profits was in excess of $21 million. Fiscal year 2009 (which apparently ran from July 1, 2008, to June 30, 2009) was the joint venture's most profitable year, resulting in profits paid and owed to Paillardon exceeding $8 million.
In 2009, ADM began raising questions about the joint venture's arrangements for paying commissions to brokers that were used by customers, even though, according to Paillardon, those same arrangements had been employed from the time the joint venture started. ADM accordingly undertook a "due diligence" investigation on the brokers. In April 2009, ADM instructed its ADM Latin employees that no further third party "commission" payments would be approved pending further review and stopped new sales that were to include brokerage commissions. In May 2009, ADM froze all activities of the joint venture. In June 2009, while the due diligence was still ongoing, ADM made the unilateral decision to terminate the JVA. This decision followed an in-person meeting at ADM's offices in Decatur, Illinois, in which ADM's senior managers and lawyers directed questions to Paillardon and determined that he did not provide adequate responses. Following the unilateral termination, ADM refused to pay Paillardon the share of the joint venture profits he was still owed for the period from January to June 2009.
Paillardon filed a lawsuit against ADM Latin in the United States District Court for the Central District of Illinois on December 18, 2009, in Case No. 09-CV-2312. ADM Latin filed a Motion to Dismiss, arguing that the action was filed in an improper venue because it was subject to binding arbitration in another judicial district. On May 26, 2010, Paillardon filed a Notice of Voluntary Dismissal. On June 21, 2010, Paillardon filed a demand for arbitration with the American Arbitration Association. The Arbitrator, mutually agreed on by the parties, was Jose Maria Abascal, a Mexican national. On November 19, 2010, Paillardon filed an Amended Statement of Claim and asserted claims for ADM's failure to pay the amounts owed to him under the CA for the second half of fiscal year 2009 and also asserted claims related to the joint venture, including: (1) that ADM Latin violated Section 7 of the JVA by terminating it without written consent; (2) that ADM Latin violated Venezuelan law by failing to act in good faith in carrying out its duties under the JVA; (3) unlawful conditioning of payment due and owing based upon ADM's refusal to pay Paillardon the amounts he was owed for the second half of fiscal year 2009 unless he agreed to certain conditions insisted on by ADM; and (4) unfair competition based upon ADM's competing with the joint venture in the sale of commodities in Venezuela. Paillardon sought both "material" and "moral" damages (as those terms are defined under Venezuelan law) on those claims. In addition, Paillardon sought recovery of his share of the joint venture's bad debt reserve, his costs of the arbitration and pre-award interest. In the arbitration, ADM asserted numerous legal and factual defenses.
The record of the arbitration proceedings is voluminous. The parties submitted pre-hearing briefs, along with 23 fact and witness statements (which served as direct testimony of the respective witnesses), as well as post-hearing submissions and responses to a questionnaire propounded by the Arbitrator, with consent of both sides, concerning certain legal issues. The parties' written submissions in the arbitration were in excess of 500 pages. In addition, the Arbitrator held a two-week long hearing from September 12 to September 23, 2011, during which witnesses were subject to cross-examination. The parties also jointly submitted over 700 exhibits to the Arbitrator.
On July 9, 2012, the Arbitrator issued his 55-page Final Award. The Arbitrator ruled in favor of Paillardon on some of his claims. In reaching his decision, the Arbitrator thoroughly discussed the terms of the JVA and CA and the parties' dealings with each other. He also thoroughly discussed the applicable Venezuelan law and included a discussion of the opinions of the parties' legal experts. The Arbitrator concluded that the JVA and CA were linked by the actual intent of the parties, which was the implementation of the business. He also concluded that the governing agreement was the JVA and the CA and ADMV were instrumentalities in the implementation of the JVA. The Arbitrator noted that ADM had stated that the CA described how profits relating to ADMV would be allocated and concluded that the CA served as an instrumentality through which ADM Latin paid the local partners, including Paillardon, the agreed share of profits. The Arbitrator concluded that, since the controlling agreement was the JVA, the law applicable to the legal consequences deriving from the linkage was the law of Venezuela. The Arbitrator rejected ADM's defense that the damages claimed by Paillardon arose from the CA and that this agreement did not allow for the rights and remedies that Paillardon sought. The Arbitrator also rejected ADM's defense that the JVA was not enforceable because it had an illegal purpose. The Arbitrator stated that "ADM failed to prove its defenses." The Arbitrator stated that, after considering ADM's defenses, he concluded that ADM was in breach of the JVA. The Arbitrator stated that ADM unilaterally terminated the JVA and breached the provision which allowed ADMV shareholders to terminate the JVA "at any time by a writing signed by each of them." The Arbitrator concluded that ADM was liable for the damages caused to Paillardon. The Arbitrator, however, rejected Paillardon's tort claims and declined to award Paillardon moral damages.
The Arbitrator concluded that ADM owed Paillardon $3, 163, 085.60 for the unpaid balance of his share of ADM Latin's profits for the fiscal year which ended June 30, 2009. The Arbitrator also concluded that ADM owed Paillardon $388, 795.92 for his share of the bad debt reserve. In addition, the Arbitrator concluded that Paillardon's lost profits "should be calculated from the stream of future profits that can reasonably be expected had the JVA not been wrongfully terminated." The Arbitrator accepted Paillardon's expert's calculations, which quantified lost profits to be the value of earnings Paillardon would have received over a period of ten years, which he ...