Opinion ID: 746823
Heading Depth: 2
Heading Rank: 1

Heading: Availability of the FAA's Grounds for Relief in Confirmation Under the Convention

Text: 15 Toys R Us argues that the district court correctly determined that the provisions of the FAA apply to its cross-motion to vacate or modify the arbitral award. In particular, Toys R Us contends that the FAA and the Convention have overlapping coverage. Thus, Toys R Us argues, even though the petition to confirm the arbitral award was brought under the Convention, the FAA's implied grounds for vacatur should apply to Toys R Us's cross-motion to vacate or modify because the cross-motion was brought under the FAA. We agree that the FAA governs Toys R Us's cross-motion.
16 Neither party seriously disputes the applicability of the Convention to this case and it is clear to us that the Convention does apply. The Convention provides that it will 17 apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought. 18 Convention art. I(1) (emphasis added). The Convention does not define nondomestic awards. See Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir.1983). However, 9 U.S.C. § 202, one of the provisions implementing the Convention, provides that 19 [a]n agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. 20 In Bergesen, we held that awards 'not considered as domestic' denotes awards which are subject to the Convention not because made abroad, but because made within the legal framework of another country, e.g., pronounced in accordance with foreign law or involving parties domiciled or having their principal place of business outside the enforcing jurisdiction. 710 F.2d at 932 (quoting 9 U.S.C. § 201). The Seventh Circuit similarly has interpreted § 202 to mean that any commercial arbitral agreement, unless it is between two United States citizens, involves property located in the United States, and has no reasonable relationship with one or more foreign states, falls under the Convention. Jain v. de Mere, 51 F.3d 686, 689 (7th Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 300, 133 L.Ed.2d 206 (1995). 21 The Convention's applicability in this case is clear. The dispute giving rise to this appeal involved two nondomestic parties and one United States corporation, and principally involved conduct and contract performance in the Middle East. Thus, we consider the arbitral award leading to this action a non-domestic award and thus within the scope of the Convention. 22
23 Toys R Us argues that the district court properly found that it had the authority under the Convention to apply the FAA's implied grounds for setting aside the award. We agree. 24 Under the Convention, the district court's role in reviewing a foreign arbitral award is strictly limited: The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention. 9 U.S.C. § 207; see Andros Compania Maritima, S.A. v. Marc Rich & Co., A.G., 579 F.2d 691, 699 n. 11 (2d Cir.1978). Under Article V of the Convention, the grounds for refusing to recognize or enforce an arbitral award are: 25 (a) The parties to the agreement ... were ... under some incapacity, or the said agreement is not valid under the law ...; or 26 (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings ...; or 27 (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration ...; or 28 (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties ...; or 29 (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. 30 Convention art. V(1). Enforcement may also be refused if [t]he subject matter of the difference is not capable of settlement by arbitration, or if recognition or enforcement of the award would be contrary to the public policy of the country in which enforcement or recognition is sought. Id. art. V(2). These seven grounds are the only grounds explicitly provided under the Convention. 31 In determining the availability of the FAA's implied grounds for setting aside, the text of the Convention leaves us with two questions: (1) whether, in addition to the Convention's express grounds for refusal, other grounds can be read into the Convention by implication, much as American courts have read implied grounds for relief into the FAA, and (2) whether, under Article V(1)(e), the courts of the United States are authorized to apply United States procedural arbitral law, i.e., the FAA, to nondomestic awards rendered in the United States. We answer the first question in the negative and the second in the affirmative. 32
33 We have held that the FAA and the Convention have overlapping coverage to the extent that they do not conflict. Bergesen, 710 F.2d at 934; see 9 U.S.C. § 208 (FAA may apply to actions brought under the Convention to the extent that [the FAA] is not in conflict with [9 U.S.C. §§ 201-208] or the Convention as ratified by the United States); Lander Co. v. MMP Invs., Inc., 107 F.3d 476, 481 (7th Cir.1997), cert. denied, --- U.S. ----, 118 S.Ct. 55, --- L.Ed.2d ----, (1997). However, by that same token, to the extent that the Convention prescribes the exclusive grounds for relief from an award under the Convention, that application of the FAA's implied grounds would be in conflict, and is thus precluded. See, e.g., M & C Corp. v. Erwin Behr GmbH & Co., KG, 87 F.3d 844, 851 (6th Cir.1996) 34 In Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (Rakta), 508 F.2d 969 (2d Cir.1974), we declined to decide whether the implied defense of manifest disregard applies under the Convention, having decided that even if it did, appellant's claim would fail. See id. at 977. Nonetheless, we noted that [b]oth the legislative history of Article V and the statute enacted to implement the United States' accession to the Convention are strong authority for treating as exclusive the bases set forth in the Convention for vacating an award. Id. (citation and footnote omitted). 35 There is now considerable caselaw holding that, in an action to confirm an award rendered in, or under the law of, a foreign jurisdiction, the grounds for relief enumerated in Article V of the Convention are the only grounds available for setting aside an arbitral award. See, e.g., M & C, 87 F.3d at 851 (concluding that the Convention's exclusive grounds for relief do not include miscalculations of fact or manifest disregard of the law); International Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, Industrial Y Comercial, 745 F.Supp. 172, 181-82 (S.D.N.Y.1990) (refusing to apply a manifest disregard of law standard on a motion to vacate a foreign arbitral award); Brandeis Intsel Ltd. v. Calabrian Chems. Corp., 656 F.Supp. 160, 167 (S.D.N.Y.1987) (In my view, the 'manifest disregard' defense is not available under Article V of the Convention or otherwise to a party ... seeking to vacate an award of foreign arbitrators based upon foreign law.); see also Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 265 (1981) (the grounds mentioned in Article V are exhaustive ). This conclusion is consistent with the Convention's pro-enforcement bias. See, e.g., Scherk v. Alberto-Culver Co., 417 U.S. 506, 519-20 & n. 15, 94 S.Ct. 2449, 2457 & n. 15, 41 L.Ed.2d 270 (1974); Parsons, 508 F.2d at 973. We join these courts in declining to read into the Convention the FAA's implied defenses to confirmation of an arbitral award. 36
37 Although Article V provides the exclusive grounds for refusing confirmation under the Convention, one of those exclusive grounds is where [t]he award ... has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. Convention art. V(1)(e). Those courts holding that implied defenses were inapplicable under the Convention did so in the context of petitions to confirm awards rendered abroad. These courts were not presented with the question whether Article V(1)(e) authorizes an action to set aside an arbitral award under the domestic law of the state in which, or under which, the award was rendered. 2 We, however, are faced head-on with that question in the case before us, because the arbitral award in this case was rendered in the United States, and both confirmation and vacatur were then sought in the United States. 38 We read Article V(1)(e) of the Convention to allow a court in the country under whose law the arbitration was conducted to apply domestic arbitral law, in this case the FAA, to a motion to set aside or vacate that arbitral award. The district court in Spector v. Torenberg, 852 F.Supp. 201 (S.D.N.Y.1994), reached the same conclusion as we do now, reasoning that, because the Convention allows the district court to refuse to enforce an award that has been vacated by a competent authority in the country where the award was rendered, the court may apply FAA standards to a motion to vacate a nondomestic award rendered in the United States. See id. at 205-06 & n. 4. 39 The Seventh Circuit has agreed, albeit in passing, that the Convention contemplates the possibility of the award's being set aside in a proceeding under local law. Lander, 107 F.3d at 478 (citing Article V(1)(e)). Likewise, the United States District Court for the District of Columbia has found that, in an arbitration conducted in Egypt and under Egyptian law, nullification of the award by the Egyptian courts falls within Article V(1)(e). See Chromalloy Aeroservices v. Arab Republic of Egypt, 939 F.Supp. 907, 909 (D.D.C.1996). 40 Our conclusion also is consistent with the reasoning of courts that have refused to apply non-Convention grounds for relief where awards were rendered outside the United States. For example, the Sixth Circuit in M & C concluded that it should not apply the FAA's implied grounds for vacatur, because the United States did not provide the law of the arbitration for the purposes of Article V(1)(e) of the Convention. 87 F.3d at 849. Similarly, in International Standard, the district court decided that only the state under whose procedural law the arbitration was conducted has jurisdiction under Article V(1)(e) to vacate the award, whereas on a petition for confirmation made in any other state, only the defenses to confirmation listed in Article V of the Convention are available. 745 F.Supp. at 178. 41 This interpretation of Article V(1)(e) also finds support in the scholarly work of commentators on the Convention and in the judicial decisions of our sister signatories to the Convention. There appears to be no dispute among these authorities that an action to set aside an international arbitral award, as contemplated by Article V(1)(e), is controlled by the domestic law of the rendering state. 3 As one commentator has explained: 42 The possible effect of this ground for refusal [Article V(1)(e) ] is that, as the award can be set aside in the country of origin on all grounds contained in the arbitration law of that country, including the public policy of that country, the grounds for refusal of enforcement under the Convention may indirectly be extended to include all kinds of particularities of the arbitration law of the country of origin. This might undermine the limitative character of the grounds for refusal listed in Article V ... and thus decrease the degree of uniformity existing under the Convention. 43 van den Berg, supra, at 355; see also Case No. 2 Nd 502/80 (Feb. 1, 1980) (Aus.), excerpted in 7 Y.B. Com. Arb. 312, 313 (1982) (in action to set aside an arbitral award, court applies the law of the country in which the award has been made). The defense in Article V(1)(e)incorporates the entire body of review rights in the issuing jurisdiction.... If the scope of judicial review in the rendering state extends beyond the other six defenses allowed under the New York Convention, the losing party's opportunity to avoid enforcement is automatically enhanced: The losing party can first attempt to derail the award on appeal on grounds that would not be permitted elsewhere during enforcement proceedings. 44 Daniel M. Kolkey, Attacking Arbitral Awards: Rights of Appeal and Review in International Arbitrations, 22 Int'l Law. 693, 694 (1988). 45 Indeed, many commentators and foreign courts have concluded that an action to set aside an award can be brought only under the domestic law of the arbitral forum, and can never be made under the Convention. See Shenzhen Nan Da Indus. & Trade United Co. v. FM Int'l Ltd., 1992 H.K. Law Digest C6 (Sup.Ct.H.K. Mar. 2, 1991), excerpted in 18 Y.B. Com. Arb. 377, 382 (1993) (Various decisions have made clear that the Convention is not applicable for setting aside awards. The court of the country of origin of the award is the only court competent to rule.); van den Berg, supra, at 20 ([T]he Convention is not applicable in the action for setting aside the award.); id. (These provisions affirm the well-established principle of current international commercial arbitration that the court of the country of origin is exclusively competent to decide on the setting aside of the award.); Jan Paulsson, The Role of Swedish Courts in Transnational Commercial Arbitration, 21 Va. J. Int'l L. 211, 242 (1981) ([T]he fact is that setting aside awards under the New York Convention can take place only in the country in which the award was made.). 46 There is no indication in the Convention of any intention to deprive the rendering state of its supervisory authority over an arbitral award, including its authority to set aside that award under domestic law. The Convention succeeded and replaced the Convention on the Execution of Foreign Arbitral Awards (Geneva Convention), Sept. 26, 1927, 92 L.N.T.S. 301. The primary defect of the Geneva Convention was that it required an award first to be recognized in the rendering state before it could be enforced abroad, see Geneva Convention arts. 1(d), 4(2), 92 L.N.T.S. at 305, 306, the so-called requirement of double exequatur. See Jane L. Volz & Roger S. Haydock, Foreign Arbitral Awards: Enforcing the Award Against the Recalcitrant Loser, 21 Wm. Mitchell L.Rev. 867, 876-77 (1996); W. Laurence Craig, Some Trends and Developments in the Laws and Practice of International Commercial Arbitration, 30 Tex. Int'l L.J. 1, 9 (1995). This requirement was an unnecessary time-consuming hurdle, van den Berg, supra, at 267, and greatly limited [the Geneva Convention's] utility, Craig, supra, at 9. 47 The Convention eliminated this problem by eradicating the requirement that a court in the rendering state recognize an award before it could be taken and enforced abroad. In so doing, the Convention intentionally liberalized procedures for enforcing foreign arbitral awards, Volz & Haydock, supra, at 878; see Scherk, 417 U.S. at 519-20 & n. 15, 94 S.Ct. at 2457 & n. 15; Parsons, 508 F.2d at 973 (noting [t]he general pro-enforcement bias informing the Convention and explaining its supersession of the Geneva Convention). 48 Nonetheless, under the Convention, the power and authority of the local courts of the rendering state remain of paramount importance. What the Convention did not do ... was provide any international mechanism to insure the validity of the award where rendered. This was left to the provisions of local law. The Convention provides no restraint whatsoever on the control functions of local courts at the seat of arbitration. Craig, supra, at 11. Another commentator explained: 49 Significantly, [Article V(1)(e) ] fails to specify the grounds upon which the rendering State may set aside or suspend the award. While it would have provided greater reliability to the enforcement of awards under the Convention had the available grounds been defined in some way, such action would have constituted meddling with national procedure for handling domestic awards, a subject beyond the competence of the Conference. 50 Leonard V. Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1070 (1961). From the plain language and history of the Convention, it is thus apparent that a party may seek to vacate or set aside an award in the state in which, or under the law of which, the award is rendered. Moreover, the language and history of the Convention make it clear that such a motion is to be governed by domestic law of the rendering state, despite the fact that the award is nondomestic within the meaning of the Convention as we have interpreted it in Bergesen, 710 F.2d at 932. 51 In sum, we conclude that the Convention mandates very different regimes for the review of arbitral awards (1) in the state in which, or under the law of which, the award was made, and (2) in other states where recognition and enforcement are sought. The Convention specifically contemplates that the state in which, or under the law of which, the award is made, will be free to set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief. See Convention art. V(1)(e). However, the Convention is equally clear that when an action for enforcement is brought in a foreign state, the state may refuse to enforce the award only on the grounds explicitly set forth in Article V of the Convention.