Case of the Day: DRC, Inc. v. Republic of Honduras

The case of the day, DRC, Inc. v. Republic of Honduras (D.D.C. 2011), is an action to enforce an arbitral award made in Honduras.  It is also the first case of the day arising under the Panama Convention. (Why does the Panama Convention, rather than the New York Convention, apply? The FAA has an express provision providing that the Panama Convention prevails when “a majority of the parties to the arbitration agreement are citizens of a State or States that have ratified or acceded to the Inter-American Convention and are member States of the Organization of American States”).

DRC had a contract with the Honduran government to construct water and wastewater projects in the aftermath of Hurricane Mitch. According to Honduras, the contract provided that the U.S. Agency for International Development would pay DRC for its work.; USAID gave DRC a “letter of commitment” to that effect. After a dispute about payment arose, DRC sued the United States in the Court of Federal Claims. The United States then sued DRC in the District Court for the District of Columbia asserting claims under the False Claims Act (in particular, that DRC was guilty of fraud in the procurement and performance of the contract), and it moved to stay the case in the Court of Federal Claims on the grounds that the outcome there would depend on the resolution of the fraud question. That court granted the motion to stay. DRC unsuccessfully sought to dismiss the False Claims Act case. Thus there are now two pending cases between DRC and the United States–DRC’s claim for payment, which has been stayed, and the False Claims Act case, which is in discovery.

After the court denied DRC’s motion to stay the False Claims Act case, DRC demanded arbitration with the Honduran government for breach of the construction contract. The arbitration took place in Honduras. The tribunal awarded DRC $51 million in damages. DRC filed a petition in the Supreme Court of Honduras seeking “acknowledgment and execution” of the award (I take it this is the same as recognition and enforcement). DRC requested a sixty-day stay of the Honduran proceedings while the parties sought to settle the case, and the court stayed the case as requested. In parallel with the Honduran proceedings, DRC sought to enforce the award in the U.S. District Court, and Honduras sought to stay or dismiss the action.

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