Eleventh Circuit Joins Its Sister Circuits in Holding that the FAA’s Grounds for Vacating Domestic Awards Are Available to Challenge International Arbitration Awards Rendered in the United States or Decided under U.S. Law
We recently wrote about the Eleventh Circuit’s May 2022 decision in Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A. (AICSA v. HSR), holding that FAA grounds for vacating domestic arbitration awards are not available to challenge international arbitration awards. The Eleventh Circuit reheard the case en banc, as urged by the three judge panel in its May 2022 opinion, and has now realigned itself with its sister circuits1 in holding that the vacatur grounds found in Chapter 1 of the FAA are available when parties seek to set aside nondomestic arbitral awards that are (a) rendered within the United States or (b) decided under United States law. These are instances in which the USA is said to have “primary jurisdiction.”
Overview of the Matter
We discussed the AICSA v. HSR matter and May 2022 decision in greater depth in our previous piece. Briefly, this was a dispute between two foreign entities, which was arbitrated in Miami. The award loser challenged the award in the district court on the ground that the arbitral panel had “exceeded its powers,” but its petition was denied. A three-judge panel for the Eleventh Circuit agreed that Article V(1)(e) of the New York Convention2 permits consideration of the FAA’s Chapter 1 vacatur grounds but said it was bound to follow circuit precedent holding to the contrary.
En Banc Decision
The Eleventh Circuit held last week that in primary jurisdiction cases, “Chapter 1 of the FAA provides the grounds for vacatur of an arbitral award.” The court distinguished between actions seeking recognition or enforcement of an arbitral award and actions seeking vacatur. The former merely “seek to give effect to an arbitral award, while vacatur challenges the validity of the award and seeks to have it declared null and void.” According to the en banc Eleventh Circuit, courts in the primary jurisdiction have authority to vacate awards under the New York Convention, whereas “[c]ourts in secondary jurisdictions can only decide whether to recognize and enforce an arbitral award.”
The Eleventh Circuit analyzed the limited grounds for refusing enforcement under Article V of the New York Convention, noting that Article V(1)(e) mentions vacatur but does not specify the grounds or procedures for vacatur within the primary jurisdiction. The Court explained that other sections of the New York Convention and Chapter 2 of the FAA, the latter of which implements the Convention in the United States, are likewise silent on vacatur grounds and instead focus on recognition and enforcement of awards. Further, according to the Supreme Court in Outokumpu, “the Convention requires courts to rely on domestic law to fill gaps; it does not set out a comprehensive regime that displaces domestic law.”3 The Eleventh Circuit therefore held that Chapter 1 of the FAA “acts as a gap-filler and provides the vacatur grounds for an arbitral award.”
The Eleventh Circuit acknowledged its holding may undercut “certain reliance interests” stemming from its prior holdings, as parties who selected arbitral seats within the Eleventh Circuit expected that Chapter 1 grounds for vacatur (e.g., “exceeding the powers”) would be unavailable to challenge awards. However, it dismissed these interests as “relatively minor” and stated blithely that “[w]hether those parties number in the single, double, or triple digits is anyone’s guess.”
Users of international arbitration should take note of this decision, as new grounds for challenging arbitral awards rendered in such popular arbitral seats as Miami and Atlanta are now available. Further, the Eleventh Circuit’s analysis and conclusion may be adopted in federal circuits that have not yet considered the issue.4
1 See Goldgroup Res., Inc. v. DynaResource de Mexico, S.A. de C.V., 994 F.3d 1181, 1188–89 (10th Cir. 2021) (compiling cases); Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998 Year of Acct., 618 F.3d 277, 291–92 (3d Cir. 2010); Gulf Petro Trading Co., Inc. v. Nigerian Nat’l Petroleum Corp., 512 F.3d 742, 746 (5th Cir. 2008); Jacada (Eur.), Ltd. v. Int’l Mktg. Strategies, Inc., 401 F.3d 701, 709 (6th Cir. 2005); Yusuf Ahmed Alghanim & Sons v. Toys “R” Us, Inc., 126 F.3d 15, 23 (2d Cir. 1997); TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 935 (D.C. Cir. 2007).
2 Article V(1)(e) provides: “Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (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.”
3 140 S. Ct. at 1645.
4 These are Circuit Courts of Appeal for the First, Fourth, Seventh, Eighth, Ninth, and the Federal Circuit.
