Summary

Plaintiff Flota Petrolera Ecuatoriana EP ("FLOPEC") hereby submits this memorandum in support of its opposition to Defendants William S. Sudhaus, David W. Sudhaus, Dragun USA LLP, Mjølner Aframax Pool Co LLC, Mjølner Solutions Chartering LLC, Mjølner Ship Management LLC, Amazonas CA LLC, Amazonas Tankers LLC, and Core Transport, LLC's (collectively, the "Moving Defendants") Motion to Compel Arbitration and Stay Proceedings (the "Motion").

PRELIMINARY STATEMENT

This case is not a contract dispute. It is a case about a sweeping scheme of corruption and fraud that siphoned hundreds of millions of dollars from FLOPEC, Ecuador's state-owned oil shipping company. The Moving Defendants, together with their co-conspirators, orchestrated a years-long scheme to seize control of FLOPEC's statutory shipping mandate, divert at least $650 million in revenues to entities they controlled, and shield their misconduct through opaque corporate structures and the corruption of Ecuadorian officials.

The Moving Defendants now ask this Court to compel arbitration of FLOPEC's claims based on arbitration clauses contained in four cherry-picked contracts that are themselves products and instruments of the very fraud and corruption at issue. The Court should deny the Motion for several independent reasons.

First, no valid arbitration agreement exists. Ecuadorian law governs FLOPEC's capacity to consent to international arbitration and requires prior written approval from Ecuador's Attorney General--an undisputed prerequisite that was never met. Further, Defendant Jaime Condoy- Blacio, the FLOPEC official who signed the main contracts on which the Moving Defendants rely, lacked authority to bind FLOPEC to international arbitration. He is now a fugitive facing corruption allegations, and signed English-language contracts he could not read, without Board approval, legal counsel, or the required governmental authorization. The Moving Defendants-- who have decades of experience doing business in Ecuador and have previously entered into arbitration clauses with Ecuador with the approval of the Attorney General--cannot credibly claim ignorance of these requirements.

This challenge is directed specifically at the arbitration clauses, not at the contracts as a whole. Under Ecuadorian law, a state-owned entity's agreement to submit disputes to international arbitration is a distinct legal act requiring separate, specific governmental authorization that was never obtained. Accordingly, the separability doctrine of Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), does not relegate this challenge to the arbitrator-- it is precisely the type of challenge to the arbitration provision itself that courts must resolve. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967).

Second, the arbitration clauses are "null and void" under the New York Convention and unenforceable as a matter of U.S. public policy. Article II(3) of the New York Convention requires courts to refer parties to arbitration unless the arbitration agreement is "null and void, inoperative, or incapable of being performed." Arbitration clauses procured through corruption of government officials or in violation of a sovereign nation's Constitution fall squarely within this exception.

Enforcing such clauses would violate the most basic notions of morality and justice and deny comity to Ecuador's constitutional order.

Third, even if a valid arbitration agreement existed (it does not), FLOPEC's claims fall outside the scope of the four cherry-picked arbitration clauses on which the Moving Defendants have chosen to rely, which apply only to disputes over the "interpretation and fulfillment" of the contracts. FLOPEC brings no contract claims; it alleges torts and statutory violations of Ecuadorian law arising from a fraudulent scheme that began years before the contracts were executed. The factual underpinnings--bribery, corruption, fraud, and the misappropriation of sovereign revenues--do not require "interpretation and fulfillment" of any contract provision.

Fourth, seven of the eight Moving Defendants are not parties to any contract with FLOPEC, let alone any contract containing an arbitration clause, and cannot compel arbitration.

Only Amazonas CA LLC signed the four contracts that the Moving Defendants have put at issue.

None of the other seven Moving Defendants--including Core Transport--have produced evidence they were ever a "Participant", a status requiring FLOPEC's express written consent. The other Moving Defendants are strangers to the contracts, which expressly bar third party enforcement.

Lastly, none of the Moving Defendants have stipulated to the arbitration tribunal's jurisdiction to hear FLOPEC's claims in the event this Court compels arbitration. As such, the Moving Defendants intend to deprive FLOPEC of any forum, thereby completely escaping accountability for their fraudulent and corrupt misconduct. This is an inequitable, unacceptable outcome, and it would be unprecedented.

The Motion should therefore be denied. This action should proceed--no stay is warranted.

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Footnotes omitted