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Jacada Ltd. v. International Marketing Strategies Inc.: Sixth Circuit Follows Suit in Defining ‘Non-Domestic’ Arbitrations Under N.Y. Convention.
The Sixth Circuit held that non-domestic arbitrations include any arbitration involving a foreign party, foreign property, or a reasonable relationship with one or more foreign states. The holding also confirms that the FAA governs the standard of judicial review of an arbitral award even when a general choice-of-law provision names a particular state.
The Sixth U.S. Circuit Court of Appeals has tackled the issue of what makes an arbitral award non-domestic for purposes of whether the N.Y. Convention should apply. In finding that an award rendered in the United States between U.S. and U.K. parties was non-domestic, the court followed the lead of First, Seventh, and Eleventh Circuits.
In Jacada v. International Marketing Strategies, No. 03-2521 (6th Cir. March 18, 2005), the three-judge appeals panel noted that the New York Convention governs the recognition and enforcement of international, non-domestic arbitral awards. The Convention allows the determination of whether an award is domestic to be made according to the law of the place where enforcement of the award is sought.
Under the Convention’s U.S. implementing legislation, “an 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 had some other reasonable relation with one or more foreign states.” 9 U.S.C. §202.
Focusing on the parties’ identities, the panel allowed litigation over the award’s enforcement to be removed to federal court, affirming a district court decision.
On a second issue, Sixth Circuit Chief Judge Danny Boggs, writing for the panel, held that the Federal Arbitration Act’s standard for vacatur should apply to the award instead of Michigan’s less deferential standard of review. The contract involved had a choice-of-law provision designating that Michigan law govern the agreement. But the court, citing Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 53 (1995), found that the FAA favored not only arbitrability, but also arbitrator discretion. Finding no unequivocal evidence that the parties intended to displace the FAA’s “manifest disregard” standard, the court chose to review the arbitral award under the federal law.
Interestingly, although agreeing that the manifest disregard standard controlled, Judge Eric L. Clay wrote separately to express his belief that the arbitral award did in fact manifestly disregard the law. The contract had a term limiting liability to the amount of the contract, a term which the arbitrator expressly chose not to apply because it “failed its essential purpose” and therefore should not be applied under the Uniform Commercial Code. The majority found the decision to ignore the contract term within the arbitrator’s discretion.
The opinion is available at 2005 WL 627558, and can also be found at http://pacer.ca6.uscourts.gov/opinions.pdf/05a0137p-06.pdf
--By Mark Boyko