Eleventh Circuit Joins Its Colleagues on the Standards for Vacating an Int'l Arbitration Award

The Eleventh U.S. Circuit Court of Appeals reversed course last month, overturning its own precedent in a rare en banc decision that held that the Federal Arbitration Act provides grounds for vacating an international arbitration case.

An Eleventh Circuit panel last year in the case urged the action the full circuit took in Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., No. 20-13039 (April 13) (available at https://bit.ly/3nCVJHF). “We believe that our Circuit is out of line with Supreme Court precedent,” noted the 2022 opinion, “but we are powerless to change the course as a three-judge panel.” Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A., 34 F.4th 1290 (11th Cir. 2022)

The 12-judge Eleventh Circuit en banc panel last month had no such hesitation. It overruled two seminal circuit cases on the grounds for vacatur of a New York Convention arbitral award. The three judges sitting on the 2022 panel were part of the unanimous en banc panel reversing years of Eleventh Circuit arbitration precedent.

"Our task is to decide what grounds can be asserted to vacate an arbitral award governed by the New York Convention," the en banc opinion notes, adding "We hold that in a case under the Convention where the United States is the primary jurisdiction—the jurisdiction where the arbitration was seated or whose law governed the conduct of the arbitration— the grounds for vacatur of an arbitral award are set out in domestic law, currently Chapter 1 of the FAA." 

The decision analyzed the standards set out in Article V of the Convention and in FAA § 10 during its en banc hearing on Feb. 14. (The oral argument was the subject of a CPR Speaks article here.) It held that in a Convention case where the arbitration is seated in the United States, or where United States law governs the conduct of the arbitration, Chapter 1 of the FAA provides the grounds for vacatur of an arbitral award under FAA § 10.  

In doing so, the circuit court overruled its own Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434, 1445-46 (11th Cir. 1998) and Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH, 921 F. 3d 1291, 1301-02 (11th Cir. 2019), to the extent that they are inconsistent with the circuit court’s en bancruling.

The circuit reasoned that Article V of the Convention addresses recognition and enforcement of awards, but slights the subject of vacatur.  The opinion notes that the Convention only sets out a limited number of grounds on which a court can refuse to recognize and enforce an arbitral award, and the only reference to vacatur in Article V is found is subsection (1)(e), which allows a court exercising secondary jurisdiction to deny a request to recognize and enforce a Convention award on the ground that it has been vacated by a court in the primary jurisdiction. But it does not purport to regulate the procedures or set out the grounds for vacatur in the primary jurisdiction. The other Convention Articles—all of which refer to recognition and enforcement—confirm that Article V(1)(e) does not provide grounds for vacatur.

The decision continues by stating that FAA Chapter 2 implements the Convention and thus the two texts should be read harmoniously. FAA Section 207 directs courts to confirm an arbitral award “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the . . . Convention,” and Article V enumerates the grounds on which a court exercising secondary jurisdiction can refuse to recognize an award. But neither Article V of the Convention nor FAA § 207 provide the grounds on which a court in the primary jurisdiction can vacate an arbitral award.

FAA Chapter 2, however provides that “Chapter 1 applies to actions and proceedings brought under [Chapter 2] to the extent that [Chapter 1] is not inconsistent with [Chapter 2] or the Convention as ratified by the United States.” 9 U.S.C. § 208. Based on the Supreme Court’s discussion in GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USA, LLC, 139 S.Ct. 2776 (2019), the Circuit reasoned that the primary jurisdiction’s domestic law acts as a gap-filler and provides the vacatur grounds for an arbitral award. In a case like the one at hand, FAA § 208 contemplates that the grounds for vacatur are the ones set out in FAA Chapter 1. Moreover, because Article V of the Convention is silent on the grounds for vacatur, there is no conflict if Chapter 1 is applied.

The circuit court noted that this interpretation of the Convention has been used in the Second, Third, Fifth, and Seventh Circuits and that they are persuasive. It also noted that issues regarding principles of stare decisis raised by Hidroeléctrica were not enough to counsel against overruling the principles. Some rationales that the Circuit provided were that Industrial Risk and Inversiones are clearly wrong, both cases are outliers, and reliance interests are relatively minor.

The Circuit vacated the judgment in favor of Hidroelétrica and remanded for the district court to consider Corporación’s § 10(a)(4) contention, that the arbitral panel has exceeded its powers.

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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.

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