11th Circuit, Sitting En Banc, Looks at Vacating an Int'l Arbitration Award under the FAA

Posted By: Julia-Françoise Raith CPR Speaks,

May a federal court vacate a non-domestic arbitration award issued pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards--the New York Convention--on the ground that the arbitrators exceeded their power under the Federal Arbitration Act, 9 U.S.C. § 10(a)(4)?

This is the question the United States Court of Appeals for the Eleventh Circuit grappled with sitting en banc last month.

The issue in the Feb. 14 argument in Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A., 34 F.4th 1290 (11th Cir. 2022), involved Corporacion AIC, S.A. (“AICSA”) and Hidroelectrica Santa Rita S.A. (“HSR”), two Guatemalan companies that signed a contract in March 2012, and restating it in February 2013, for the construction of a hydroelectric power plant in Guatemala.

Under the contract terms, AICSA was responsible for creating a new power plant for HSR. But in October 2013, AICSA had to discontinue the project because HSR issued a force majeure notice under the contract—excusing HSR’s performance for reasons beyond its control--which led HSR to seek reimbursement for the advance payments it had made to AICSA.

When HSR commenced arbitration in the International Court of Arbitration in order to recover the advance payments, AICSA sought dismissal of HSR’s claims and counterclaimed for damages, costs, and reimbursements for its subcontractor, and attorney’s fees and expenses, according to the Eleventh Circuit panel opinion issued last May.

A three-member arbitration panel ruled for HSR on the merits claims, returning “about $7 million and about €435,000 to HSR in advance payments while allowing AICSA to keep what it had earned pursuant to the contract, about $2.5 million and about €700,000,” the opinion states.

AICSA filed suit in U.S. District Court to vacate the arbitral award on the basis that the arbitration panel had exceeded its powers. The court denied AICSA’s petition, declining to analyze whether the arbitrators had indeed exceeded their powers, saying that Eleventh Circuit precedent foreclosed AICSA’s claim that a party to a New York Convention arbitration could challenge an arbitration panel’s decision on the exceeding powers ground under 9 U.S.C. § 10(a)(4) of the Federal Arbitration Act (FAA).

In the appeal, an Eleventh Circuit panel reviewed de novo questions of law:

  1. May the Eleventh Circuit, under its own precedent, decide that an arbitration panel exceeded its powers in a non-domestic arbitration under the New York Convention? and
  2. If so, did the arbitration panel in the case exceed its powers?

Because the Eleventh Circuit is bound by precedent to answer the first question in the negative, the panel decision stated, the circuit court could not reach the merits of the second question.

The parties disagreed about the parameters of the New York Convention. Article V of the New York Convention provides seven grounds on which recognition and enforcement of an international arbitration award may be refused. In Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998), the Eleventh Circuit refused to vacate an arbitral award based on anything other than the New York Convention’s explicit carveouts in Article V. Under Article V(1)(e), U.S. courts may apparently set aside or suspend an award when the United States was either the location of the arbitration or was the source of law for the arbitration.

The Supreme Court touched on Article V’s connection to the FAA in BG Group PLC v. Republic of Argentina, 572 U.S. 25 (2014). In this case, the Supreme Court evaluated an international arbitration award on a ground not expressly mentioned in the New York Convention’s Article V, but rather one mentioned in FAA Section 10—that the arbitration panel exceed its powers.

This holding as to the exceeding powers ground, according to the Eleventh Circuit Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A. panel opinion, implicitly contradicted the circuit’s previous ruling in Industrial Risk that only those express grounds listed in Article V could allow a domestic court to vacate an international arbitration award.

Even if Industrial Risk had been wrongly decided, it was binding on the Eleventh Circuit’s prior-panel precedent rule unless a Supreme Court case or an en banc panel of the Court had clearly overruled the relevant precedent.

With Inversiones Y Procesadora Tropical Inprotsa v. Del Monte Int'l GMBH, No. 18-14807 (11th Cir. Sep. 5, 2019) (per curiam) (unpublished), being the most recent Eleventh Circuit precedent on the issue, the panel was bound by Industrial Risk. In Inversiones, the petitioner “failed to assert a valid defense under the [New York Convention], as required by our opinion in Industrial Risk.  . . .”  The Corporacion AIC stated that the circuit court was compelled to say that the arbitration award may not be vacated between AICSA and HSR on the exceeding powers ground, a domestic ground for vacatur not explicitly listed in New York Convention Article V.

Consequently, the appellate court in Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A. could not reach the merits of whether vacatur would be appropriate on the exceeding powers ground.

The unanimous Eleventh Circuit panel opinion, written by Senior Circuit Judge Gerald Bard Tjoflat, offered an alternative path: an en banc rehearing.

In sum, the Eleventh Circuit reviewed the district court refusal to vacate an arbitral award and affirmed the determination because the three-judge panel was powerless to change the course as a three-judge panel.

“As a result,” wrote Tjoflat, “we must affirm the District Court’s determination that it could not vacate an arbitral award under the New York Convention on the exceeding powers ground."

But, he added, "[i]n so doing, we hope that this case will be taken en banc where this Court may overturn [Inversiones] and [Industrial Risk Insurers], and hold that under a correct understanding of Supreme Court precedent the exceeding powers ground is a valid basis for vacatur under both the New York Convention and the FAA. Until an en banc panel of our Court takes up this issue, our hands are tied.”

The full circuit court agreed to take up Senior Circuit Judge Tjoflat’s request.

At last month’s Valentine’s Day Eleventh Circuit en banc oral argument, Andrew R. Lee, attorney for appellant AICSA and a partner at Jones Walker in New Orleans, argued that the circuit precedent is out of line not only with seven U.S. Circuit Courts of Appeals, but also with the U.S. Supreme Court case, BG Group plc v. Argentina, 572 U.S. 25 (2014). The Supreme Court case assumed without deciding that in proper  circumstances, domestic laws of vacatur apply to nondomestic arbitration challenges.

Lee stated that BG Group did not definitively overrule Industrial Risk and Inversiones, but that it is strong dicta for requiring domestic law to fill the gaps of the New York Convention. BG Group quoted New York Convention Article V(1)(e) to apply the domestic law of the arbitral seat in order to determine whether to set aside an award.

Additionally, Lee referenced a 2020 Supreme Court decision, GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA, LLC, 139 S.Ct. 2776 (2019), explaining that the Court held that New York Convention Section 208 requires domestic law to fill the gaps.

Lee remained firm that, unlike the respondent’s view, New York Convention Article V is not the way to harmonize Convention provisions, especially because Article V only speaks of enforcement, not vacatur, and because Article V(1)(e) does not prohibit a court from looking at domestic law to fill the gaps.

It was argued that taking the respondent’s position would lead to a lack of uniformity, since countries did not sign onto the New York Convention with the belief that every country had the same vacatur grounds. But Lee provided examples of countries around the world applying domestic law for grounds for vacatur, including the United Kingdom, Switzerland, India, Australia, and Spain.

Petitioners’ attorney Lee explained that there were no real differences in regard to practical implications of getting to vacatur if Industrial Risk and Inversiones were overruled: the literal and textual reading of the Convention make obvious that gaps are supposed to be filled by domestic law.

Lee concluded his argument by asking the en banc judges to decide on the merits that the arbitral panel in Corporacion exceeded its power, overrule Industrial Risk and Inversiones, reverse the district court’s decision, and remand the case.

Jaime Bianchi, attorney for respondent HSR and a partner in the Miami office of White & Case, opened his argument on behalf of Hidroelectrica Santa Rita S.A. by highlighting the 25 years of Eleventh Circuit precedent relating to this legal question.

The en banc judges stated that the precedent is clear, but admitted that it is out of step with every other U.S. Circuit Court. Bianchi argued that although the Eleventh Circuit precedent is an outlier, it is the correct decision under the language of Federal Arbitration Act § 207, which says that the only grounds for refusal are in Article V of the New York Convention.

Bianchi expanded by emphasizing that FAA Chapter 2 was defined broadly and that if Congress had wanted domestic law to fill in the gaps of the New York Convention, it would have made that clear. He said that the New York Convention’s purpose is not to make it easier to enforce domestic awards than non-domestic awards.

This approach, the respondent argued, does justice to both the language and structure of the New York Convention and FAA Chapter 2 while also applying a sense of practicality. It would make no sense to make awards subject to the Convention and then take a step back and apply FAA § 10 grounds and not Article V of the New York Convention. If this were the case, the process would not be streamlined but rather made more difficult.

The judges pushed back, however, stating that New York Convention Article V is for opposing enforcement, not vacatur, and FAA § 10 actually addresses vacatur.

And although Bianchi couldn’t produce any countries or signatories that interpret the New York Convention in a similar manner, he stated the countries such as England and France believe that Eleventh Circuit law is the correct law, and that each domestic jurisdiction and how they treat non-domestic and domestic awards would need to be looked at individually.

At the end of both the appellant’s and respondent’s arguments, appellant AICSA attorney Andrew Lee was given rebuttal time. The majority of Lee’s rebuttal was spent on the issue of stare decisis and reliance interests. Lee stated that cases are particularly ripe for overruling that are out of line with other circuits. He said that if the Eleventh Circuit was only worried about reliance interests, it would never correct its  law even if it thought the law was wrong.

Lee continued by stressing that there is no justice in unjust forum shopping on outlier precedent of the Eleventh Circuit, and that cities under the en banc panel's jurisdiction, such as Miami, will continue to thrive even if this precedent is overruled because of the international nature of the city, bilingual attorneys and experts, and more.

Lee concluded noting that FAA § 207 enacts the New York Convention and does not speak to domestic law. Chapter 2 covering the New York Convention does not have a vacatur provision, since the New York Convention has no procedures, requirements, or grounds for vacatur. The question remains, Lee said: Where are we supposed to look? He argued that that the respondent incorrectly says courts look to Chapter 2, but that is simply an enactment provision.

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The decision had not yet been issued as of this posting.  Audio of the Eleventh Circuit oral argument is available here.

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The author, a second-year law student at the Villanova University Charles Widger School of Law in Villanova, Pa., is a CPR 2023 Spring Intern.