Judicial enforcement of arbitral provisional measures orders
remains an area of considerable uncertainty and anxiety. But United States law on the subject is becoming clearer.

On January 15, a federal district judge in Dallas, Texas entered an order based on Section 9 of the FAA confirming as an award a preliminary injunction order entered by a three-member tribunal. Western Technology Services Int’l v. Caucho Industriales S.A., 2010 U.S. Dist. LEXIS 3279 (N.D. Tex. Jan. 15, 2010). The Court was invited by the party seeking confirmation to find that it had jurisdiction to confirm the preliminary injunction order as an award on either of two grounds: first, that Section 9 of the FAA permits confirmation of interlocutory orders as awards because it contains no finality requirement, and second, that the issue decided in the preliminary injunction order was sufficiently distinct and separate from the remaining issues in this case that the order could be confirmed as a final disposition of that issue. The Court here elected the second option, and reached the conclusion that the order had sufficient finality based in part on the parties’ expressed intent to have judicial review of temporary injunction orders.

The Court’s analysis is not particularly elaborate, but the approach is an interesting one. The underlying merits of the case involved termination of distribution agreements, the Claimant having commenced the arbitration to obtain a declaration that its termination decisions were lawful. The preliminary injunction order held, based upon a showing of probable success on the lawful termination issue, that Claimant was entitled to enforcement of the non-compete provisions in the contracts during the pendency of the arbitration.

One can readily understand the Court’s reliance on the parties’ expression of intent to have the preliminary injunction order judicially reviewed. The ability of a terminated distributor to engage in a competing business venture during the pendency of the arbitration often will have enormous commercial significance. Given to uncertain and possibly lengthy duration of a complex arbitration, competition rights during the pendency of the case may be as important to the parties’ business interests as the final determination of the legality of the termination. The Court’s reliance on the parties’ intent to make preliminary injunction orders reviewable should not be seen as acceding to a conferral of power under the FAA by consent, but as the acceptance of convincing evidence that the competitive rights of the parties during the arbitration were of sufficient importance to the parties that the determination of those rights should be viewed as a separate and distinct issue capable of a final decision. While the arbitral tribunal might ultimately find in a final award that the non-compete is unenforceable, the preliminary injunction order has potentially significant and irreversible economic impact for the duration of the proceedings, and is effectively a final determination of the enforceability of the non-compete during that substantial period of time.

In reaching its decision, the District Court in Western Technology relied on decisions of two federal circuit courts of appeals, each having held that “‘[a] ruling on a discrete, time-sensitive issue may be final and ripe for confirmation even though other claims remain to be addressed by the arbitrators.’” Arrowhead Global Solutions, Inc. v. Datapath, Inc., 2006 U.S. App. LEXIS 2786 at *9 (4th Cir. Feb. 3, 2006), quoting from Publicis Commun. v. True North Communs. Inc., 206 F.3d 725, 727 (7th Cir. 2000).

Decisions like these are encouraging for users of arbitration. Greater certainty about the enforceability as awards of arbitral interim measures orders encourages parties to use the arbitral process rather than go to court for interim measures in the first instance, and encourages voluntarily compliance with arbitral interim measures by the affected party in view of the likely futility of an application to vacate an award.

(For a review of other U.S. case law, the reader is encouraged to consult Gary Born, International Commercial Arbitration, Cases and Materials (3d ed. 2009) at page 467, and to note the distinction drawn there in the case law between interim orders that deal in permanent fashion with a substantive aspect of the disputes, and those that address procedural or evidentiary matters).

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Dear Readers:

In anticipation of a more formal article to be published elsewhere that will comment upon the T. Co. v. Dempsey decision (2010 U.S. App. LEXIS 893 (2d Cir. Jan. 14, 2010)), and in the interest of the objectivity of that article (this writer was on the losing side of the reconsideration issue), I offer some remarks here for your consideration and comment.

The Second Circuit holds that the parties’ adoption of ICDR Rule 30(1), and their submission of applications to the arbitrator under that Rule, constitute “clear and unmistakable evidence” of their intention to allocate to the arbitrator, subject to very narrow and deferential judicial review, the task of determining the scope of the arbitrator’s powers under the Rule.

I wonder how the following considerations, not examined by the Court, might be seen to affect the soundness of that conclusion.

1. Article 30(1) permits a party to ask the arbitrator to correct clerical, typographical, and mathematical errors. But Section 11 of the FAA also provides that a party may apply to the District Court to correct an “evident material miscalculation of figures” or “an evident material mistake in the description of any person, thing or property referred to in the award.” Nothing in the ICDR Rules requires a party to seek corrections before the arbitrator under Article 30(1), either as a precondition for, or as a substitute for, an application to a court for such corrections under FAA Section 11. Thus, the arbitrator and the District Court have concurrent jurisdiction on the corrections issue. If a party selects the judicial path, the District Court’s presumably reasoned correction decision is reviewed de novo by the Court of Appeals. If the party selects the arbitral path, a poossibly unexplained correction decision by the arbitrator is to be reviewed, under T. Co. v. Dempsey, with extreme deference. The adverse party has no control over the forum selection when the dispute arises; the Rule 30(1) application is made unilaterally not consensually. These considerations would seem to cut against the conclusion that either the a priori agreement to arbitrate under the ICDR Rules, or the unilateral submission of a correction application under ICDR Rule 30(1), is “clear and unmistakable evidence” of both parties’ intention to have the correction application resolved by the arbitrator with only limited deferential review by a court.

2. The ICDR Rules do not provide that the arbitrator’s decision on an application under Rule 30(1) shall take the form of an award. Indeed, the Rule does not provide for the issuance of an amended award in case the application is granted. It provides only that the arbitrator shall “comply with [the] request.” And ICDR Rule 27(7), which sets out the types of awards (”final”, “interlocutory,” “interim,” “partial”) does not mention an “amended” award.

3. The ICDR Rules do not even require that the granting or denial of an application for corrections under Rule 30(1) be supported by a statement of reasons. Indeed, the Rule does not require the arbitrator even to respond if the arbitrator concludes that the application lacks merit. Given the Rules’ requirement of reasoned awards, a court should be reluctant to conclude that the parties intended that unexplained changes to an award under Rule 30(1), altering the outcome, would receive the same deferential scope of review as the initial reasoned award itself. The fact that the arbitrator in T. Co. v. Dempsey did explain himself seems to have obscured the importance of the fact that he need not have done so.

4. The categories of corrections permitted by Rule 30(1) — clerical, typographical, mathematical — are so well-defined and objective that Rule itself stands as evidence that the parties did not bargain for arbitral discretion and judgment in the Rule’s application. It is a rule whose application the layperson would reasonably expect to involve ministerial, not judgmental, decisions. Any judgmental application of the Rule is contrary to reasonable a priori expectations. If the parties had addressed themselves specifically to the question of what scope of judicial review should apply, one would expect them to have wanted full-bore de novo review because of the substantial possibility that any exercise of discretion might be a misapplication of the Rule.

I look forward to your comments.

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Dear Readers:

It is not often I have the opportunity to write about my own cases. But today I do.

The Second Circuit yesterday decided a case called T. Co. Metals LLC v. Dempsey Pipe. It is found on 2d Cir. website, where you may read/download.

The portion of the decision that I hope is of interest involves the arbitrator’s issuance of an amended award altering the outcome on the merits, based on the arbitrator’s construction of ICDR Rule 30(1) permitting correction of “clerical” errors. Reversing the District Court, the Second Circuit holds that the arbitrator’s construction of the Rule was entitled to deference — and vacates the order confirming the original award, and remands for the amended award to be confirmed.

I invite your comments, as I am troubled by the decision for reasons that I think go beyond the disappointment of having my client on the losing side on this issue.

I argued that there had to be a limit to deference here, because there is no ground for the original award to be vacated. If the arbitrator may construe the clerical error rule, given judicial deference, to permit substantive chsnges in the outcome, there can be two enforceable awards with different outcomes (not to mention evisceration of the rules, like ICDR 30(1), limited changes to clerical,typographical and calculation errors.

The Court solves that problem by vacating the original award. But as I see it, there is no basis in the NY Convention (assuming it is a Convention award) to refuse confirmation of the original award, nor any such basis in FAA Chapter 1 if it is a domestic award. An appellate order vacating confirmation
strikes me as equivalent of district court order refusong confirmsation, and must be subject to the same FAA/Convention limits.

Is the vacatur of the order confirming orginal award is improper? I welcome your views on that!

Thanks.

Marc

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While the arbitration community awaits the Supreme Court’s decision in the Stolt-Nielsen case, US courts and commercial arbitrators continue to wrestle with the suitability of the arbitral forum for class action litigation.

In a recent case, the district judge who decided Stolt-Nielsen in the first instance upheld an arbitrator’s clause construction award in a proposed Title VII class action. The award held that the relevant arbitration clause did not prohibit class actions, and, as this was an adhesion contract between an employer and employees, the employer’s failure to include an express prohibition was dispositive in construing the clause to allow class actions. The court rejected arguments that this decision by the arbitrator either exceeded her powers or constituted manifest disregard of the law. Jock v. Sterling Jewelers, Inc., 2009 U.S. Dist. LEXIS 120782 (S.D.N.Y. Dec. 28, 2009).

Consider how the Court’s initial decision to permit an arbitrator to construe the arbitration clause impacts the outcome. The clause says nothing about class arbitration, but if the arbitrator’s decision is viewed as a construction of the clause, even a “barely colorable justification” will be enough to sustain the decision.

But this characterization of the arbitrator’s decision is not particularly appropriate — even though, under the AAA’s special rules concerning class actions, it is denominated a “clause construction award.” An arbitrator’s decision that the contract is one of adhesion, and that this results in a default rule favoring the plaintiff’s position (e.g. to proceed by class action) unless the defendant, normally a corporation, has excluded that position by specific language, is in reality a policy judgment about access to justice, effective enforcement of the federal statutes (like Title VII) under which class claims typically are brought, and the ability of arbitrators to manage large complex cases.

It is inevitable that the law will evolve to permit class actions to enforce federal statutory rights and to prevent corporations from drafting arbitration clauses to prevent even a judicial class action by forcing all potential plaintiffs into individual arbitrations. Solution of the problem should not continue to be a burden for courts and arbitrators on a case by case basis.

A simple amendment to the Federal Arbitration Act could usefully provide: “Where the claim in arbitration can meet the requirements of Rule 23 of the Federal Rules of Civil Procedure to proceed as a class action, as determined by the arbitrator(s), the arbitration clause upon which the claim is based shall not be construed to prohibit such an action.”

Following such an amendment, one would expect arbitral instutions to develop specific rules governing arbitral class actions. And one would expect that corporations that have hoped to use arbitration as a vehicle avoid class actions, whether arbitral or juidicial, to opt into or out of arbitral class actions based on the efficicacy of the competing judicial and arbitral class dispute procedures.

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A decision from the Southern District of New York reminds us that an agreement to arbitrate under arbitration rules that give the arbitrator power to rule on her own jurisdiction will be “clear and unmistakable evidence” that the parties intended the arbitrator, not a court, to resolve all issues concerning the existence, validity and scope of the arbitration agreement. Here a publisher brought suit for copyright infringement, against the same infringer it had sued in a still-pending arbitration. The publisher claimed the actions concerned infringement in different time periods, one covered by the arbitration clause, the other not. As the clause called for arbitration under the AAA Commercial Rules, which clearly confer power on arbitrators to decide issues concerning their own jurisdiction, the court stayed the action pending arbitration. Argus Media, Ltd. v. Tradition Financial Services, Inc, 2009 U. S. Dist. LEXIS 120866 (S.D.N.Y. Dec. 29, 2009).

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Investment law proceduralists will find much room for debate in the recent decision of a divided ICSID Tribunal, denying the application of an American investor to join additional claims in a BIT arbitration against the former Soviet republic of Georgia. (Itera International Energy LLC and Itera Group NV v. Georgia, ICSID Case No. ARB/08/7, Decision on Admissibility of Ancillary Claims, Dec. 4, 2009)

In broadest terms, the dispute involved non-performance by Georgia under agreements for payment of unpaid bills for natural gas that the Claimant had supplied to state-owned entities. Under one agreement, Claimant purchased a 90% interest in a State-owned company, under a privatization plan; partial payment of the gas supply debt was to take the form of forgiveness of taxes owed by the newly-privatized acquired entity. But Georgia reacquired the 90% interest by official decree, giving rise to an expropriation claim by Claimant under the US-Georgia BIT. A second arrangement for part payment of the natural gas debt entailed a commitment by Georgia’s Energy Ministry, through a financial agent called Sistema, to pay Claimant $46 million in quarterly installments over seven years. When that agreement was breached, Claimant commenced a private commercial arbitration in Russia as provided in the agreement. But in its Request for Arbitration in the ICSID case, Claimant reserved the right to bring claims under the BIT relating to non-performance installment payment contract.

Claimant, motivated in part by Georgia’s objection to the jurisdiction of the commercial arbitration tribunal in Moscow, sought in its memorial on the merits in the BIT case to interject Treaty claims concerning non-performance of the installment payment plan. Claimant relied on Article 46 of the ICSID Convention and Article 40 of the ICSID Arbitration Rules, which in similar terms allow the assertion of “additional claims . . . arising directly out of the subject matter of the dispute.” In this case, the majority of the Tribunal took a restrictive view of “subject matter of the dispute,” following the official explanatory comment to ICSID Rule 40, to the effect that the claims must be so related that resolution of the claim first asserted would necessarily require resolution of the claim proposed to be added. Under this standard, the majority reasoned, the two claims were unrelated, even if they arose from the same “subject matter” of natural gas debt payment by Georgia to Claimant, and even if some procedural efficiencies would be achieved by joinder of the claims.

The dissenting panelist, Professor Francisco Orrega Vicuna, would have concluded instead that these were “two concurrent arrangements directed to reach the same objective of making the Claimant whole for the monies owed,” and that the factual connection of the two claims was “close enough as to require their simultaneous adjudication so that settlement of the dispute will be final.”

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One of the dilatory tactics commonly employed by litigants in the arbitration process is the tactical request for adjournment of hearings. Many arbitrators, reluctant to invite a challenge to the award based on alleged procedural unfairness, will succumb to adjounment request even if it is transparently tactical and dilatory.

Arbitrators whose instincts are to resist such tactics will surely take comfort in a recent decision from the federal court in the Southern District of New York. (Bridgepointe Master Fund v. Biometrx, 2009 U. S. Dist. LEXIS 115678 (S.D.N.Y. Dec. 11, 2009)). Here, the Court rejected a motion to vacate the award based on the panel’s refusal to adjourn a hearing on the merits that was scheduled on two business days’ notice. The Court found that the movant had made “a tactical choice to absent itself from the arbitration” from the outset, and that its conduct had included: the CEO’s declaring his intention to file bankruptcy rather than defend the case; conscious refusal to participate in any aspect of the proceedings; failure to respond to the AAA’s request for an update on the plans for a bankruptcy filing; non-attendance at a pre-hearing procedural meeting; and failure to avail itself of the panel’s invitation to renew the request for adjournment on the first day of the merits hearings.

While this record of non-participation is more ample than what the arbitrator may confront in many cases, the Court held that the same legal standard applies — i.e. “barely
colorable justification” — to a motion to vacate based on refusal to postpone a hearing (FAA Section 10(a) (3)) as to motions to vacate based on other Section 10 grounds. Thus the arbitrator has substantial discretion to keep the hearings on schedule and the courts will show great deference.

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What liberty of contract do State parties to a bilateral investment treaty have to define broadly the category of “investments” that may be the subject of arbitration between one Contracting State and an investor of the other? The arbitral tribunal in Romak S.A. v. Republic of Uzbekistan (PCA Case No. AA280, available at Permanent Court of Arbitration website, www.pca-cpa.org) appears to fix limitations on such freedom of contract in its award, issued November 26, 2009, dismissing the Claimant’s claims on the basis that an account receivable arising from the sale of tens of thousands of tons of grain was not an “investment” under the Switzerland-Uzbekistan BIT.

One may readily agree that a one-off sale of goods transaction fails to qualify under the ordinary meaning of the term “investment,” normally lacking the basic and well-understood attributes of an “investment”: an economic contribution by the investor, a certain duration of the contribution, and an element of economic risk.

But what should be the outcome when the BIT defines “investment” to be “every kind of assets, and particularly. . . claims to money or to any performance having an economic value” ?

The Tribunal acknowledged that its mission, in observance of the Vienna Convention on the Law of Treaties Article 31(1), was to “resort to the ‘ordinary meaning’ of the terms of the BIT ‘in their context and in the light of its object and purpose.’” What seems curious in the reasoning of the Tribunal is that its point of departure was to seek out the ordinary meaning of “investment” — in the first instance, from Black’s Law Dictionary — notwithstanding that the Treaty established “investment” as a defined term, rather than turn immediately to the ordinary meaning of the words used in the definition. The central definitional phrase — “every kind of asset….” — appears to offer relatively clear guidance, albeit guidance that may be at loggerheads with evolving investment law conceptions of “investment,” and of what investment lawyers and arbitrators may regard as a sensible allocation of jurisdiction among State courts and BIT arbitral tribunals.

Just as provocative of debate is the Tribunal’s handling of the “object and purpose” and the “context” of the defined term “investment” in this BIT. The Tribunal refers to recitals in the preamble of the Treaty, wherein the parties declare that they are “[r]ecognizing the need to promote and protect foreign investments with the aim to foster economic prosperity of both States,” and “[d]esiring to intensify economic cooperation to the mutual benefit of both States.” The Tribunal thought it self-evident that these recitals contradict the notion that “every kind of asset” including a “claim for money” can sensibly include the account receivable arising from a large grain supply contract between a Swiss supplier and a State-owned Uzbek buyer. And the Tribunal took as guidance to the “context” of the BIT’s definition of “investment” the fact that, on the same day the BIT was signed, Switzerland and Uzbekistan also entered into an Agreement on Trade and Economic Cooperation. The Tribunal, making no specific findings, apart from the date of signature, as to whether, for purposes of Vienna Convention on the Law of Treaties Article 32((2), the Trade Agreement was an “agreement relating to the treaty which was made … in connection with the conclusion of the treaty,” nevertheless concluded that the two agreements, juxtaposed, raised an inference that sales of goods transactions were intended to be excluded from the BIT definition of “investments.”

The Tribunal also considered that it would be “manifestly absurd and unreasonable” (Vienna Treaties Convention Article 32(2)) to make a literal application of “every kind of asset” including a “claim for money,” as to do so would create a broad swath of concurrent jurisdiction, between domestic courts and international arbitral tribunals, over commercial transactions between private actors of one Contracting State and State entities of the other.
But the case stated for absurdity is not cast in terms of the Contracting States’ objectives — one can well understand why a developing country with an unstable judiciary might create such concurrent jurisdiction as an inducement to investment. Rather, the absurdity is said to lie in the prospect of a broad domain of concurrent jurisdiction over commercial matters — a conception that sales contracts “‘are not investment contracts, except in exceptional circumstances, and are to be kept separate and distinct for the sake of a stable legal order.’” (Award Par. 185, quoting from the ICSID Tribunal award in Joy Mining Machinery Ltd. v. Arab Republic of Egypt, ICSID Case No. ARB/03/11, Award on Jurisdiction, August 6, 20045, par. 58).

Perhaps more analytically convincing is the Tribunal’s reliance on the fact that the Swiss-Uzbek BIT adopted two arbitration alternatives from which the investor might choose: ad hoc UNCITRAL Arbitration and ICSID Arbitration. For that choice to be an effective one, the Tribunal reasoned, the “investments” qualifying for arbitration under either mechanism should be the same, and thus an interpretation should be avoided that would make “investments” eligible for UNCITRAL arbitration but not ICSID Arbitration. Correspondingly, ICSID jurisprudence was held to provide suitable inspiration and guidance (but not precedent in a stare decisis sense) for deciding the treaty interpretation issue here. Of course, here again there was at least one other way of looking at things: that ad hoc arbitration under the UNCITRAL Rules was included to ensure that disputes that would not jurisdictionally qualify for ICSID arbitration under the ICSID Convention conception of “investment,” but were intended to be arbitrable under the BIT, would find their way to an arbitral forum.

With these analytical premises in place, the Tribunal proceeded to rely on ICSID jurisprudence for its conclusion that “the term ‘investments’ under the BIT has an inherent meaning (irrespective of whether the investor resorts to ICSIDE or UNCITRAL arbitral proceedings) entailing a contribution that extends over a certain period of time and that involves some risk.” And the Tribunal took pains to insist that it was completely accepting of the notion that State parties to a BIT have freedom of contract to decide what scope to give to the term “investments” — but that the parties here had not, at least not in sufficiently plain terms, elected to treat sales of goods transactions as such. This latter declaration by the Tribunal might well have been included to anticipate that some readers would raise the concern stated in the first sentence of this commentary. And the reasoning in this award appears to underscore that, in the jurisprudence of arbitral jurisdiction under investment treaties, there is an unresolved tension for arbitrators between engaging in principled treaty interpretation and choreographing a “sensible” transnational system for the resolution of disputes.

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The U.S. Third Circuit Court of Appeals has issued an important reaffirmation of certain core principles in the American jurisprudence of the New York Convention. In a “non-precedential” opinion that will nevertheless be very persuasive in future cases, the Court:
1. Declared, consistent with prior case law in other federal courts, that Convention Article V(1)(e)’s reference to “a competent authority of the country… under the law of which the award was made” refers “‘exclusively to procedural and not substantive law, and more precisely, to the regimen or scheme of arbitral procedural law under which the arbitration was conducted.’” Here, the Court held, the arbitration award was made in Singapore under Singapore arbitration procedural law, and so the order of a Philippine court that might have been construed as setting aside the award furnished no basis for a U. S. court to refuse enforcement.
2. The “public policy” defense to enforcement under Convention Article V(2)(b) extends only to “‘violat[ions] [of] the forum state’s most basic notions of morality and justice.’”
Here, the Court found, not only was there no violation of public policy by the District Cour proceeding with enforcement while set aside proceedings were pending in Singapore, but such action was fully consistent with the policy objectives underlying U.S. accession to the Convention.
Steel Corp. of the Philippines v. Int’l Steel Services, 2009 U. S. App. LEXIS 25404 (3d Cir. Nov. 19, 2009).

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Does Chapter Two of the Federal Arbitration Act confer federal subject matter jurisdiction, in a federal district court at the seat of the arbitration, over a motion to vacate a Convention award?

A senior federal district judge in Chicago has raised this issue, sua sponte, in an action to vacate a Convention award that was brought to the federal court from an Illinois state court by a Notice of Removal. In a published order, the Court expressed doubt that federal subject matter jurisdiction exists, and invited the parties to brief the issue by December 9. Virginia Surety Co. v. Certain Underwriters at Lloyd’s, 2009 U. S. Dist LEXIS 110320 (N.D. Ill Nov. 25, 2009).

It may be assumed that the issue arises because the underlying arbitration, and the action for vacatur brought in the Illinois court, are between two parties of non-U.S. nationality. Thus the case falls within that anomalous lacuna of federal diversity jurisdiction: that an action between a French corporation and a German corporation, for example, must be brought in a state court unless a federal statute or treaty, or the U.S. Constitution, is involved.

Chapter Two of the FAA, enacted in 1970, was motivated by the desire to pass enabling legislation to adopt the New York Convention as a fully effective treaty of the United States within the body of domestic law. Section 201 of the FAA states that the Convention “shall be enforced in accordance with this Chapter.” But does this mean that Chapter Two’s jurisdiction-conferring sections only operate to confer jurisdiction over an action or proceeding that the Convention and/or Chapter Two recognizes expressly, i.e. an action to enforce an agreement to arbitrate or to recognize and enforce an award?

Parsing of the text of Chapter Two suggests that it is not so limited. Section 202 sets about to define when an arbitration agreement or award — not an action or proceeding — “falls under the Convention.” These are defined to be arbitral agreements and awards “arising out of a legal relationship…which is considered as commercial,” but excluding those relationships that are entirely between U.S. citizens unless that relationship involves property located abroad or some other substantial relationship with a foreign state.

Section 203 then confers subject matter jurisdiction on federal courts by stating that “any action or proceeding falling under the Convention” shall be deemed to arise under the laws and treaties of the United States.” There is no definition given of “action or proceeding falling under the Convention.” Had the drafters intended “falling under the Convention” in Section 203 to have a more limited scope than what “falls under the Convention” in Section 202 — i.e. had they meant only actions to enforce agreements or awards — one would think Section 203 would have been written in a different way. It could have referred, narrowly, to the actions and proceedings authorized by Chapter Two. The compelling inference from the consecutive repetition of “fall[...] under the Convention” in Sections 202 and 203 is that any action or proceeding authorized by law that involves a Convention agreement or award is within the subject matter jurisdiction conferred on the federal courts by Section 203 — and it would be for a federal court also to decide whether a particular action or proceedings relating to a Convention agreement or award does in fact exist as a matter of law.

The Court in Virginia Surety points out that Section 207 of the FAA expressly provides for an application in federal court to confirm a Convention award. The Court then goes on to note the absence of any similar express reference to an application to set aside an award.

The piece missing from the Court’s discussion is Section 208. It provides that Chapter 1 of the FAA shall apply “to actions and proceedings brought under this chapter” to the extent Chapter One is not in conflict with Chapter Two or the Convention.

But Section 208 is not necessarily dispositive. Strictly construed, Section 208 could be interpreted not as folding into Chapter Two the “actions and proceedings” mentioned only in Chapter One, but only as applying Chapter One procedures, residually, to actions and proceedings authorized by Chapter Two. But this interpretive dilemma perhaps does not need to be resolved. Instead, one may refer back to the jurisdiction-conferring Section 203. Notably, it speaks in terms of “actions and proceedings falling under the Convention” and not merely those actions and proceedings authorized by Chapter Two. If, as seems evident, Section 203 “actions and proceedings” includes more than the Section 206 motion to compel arbitration and the Section 207 motion to confirm an award, then the “more” almost certainly includes a motion to vacate, modify, or correct an award. And Section 208 would seem to be corroborative of that construction of Section 203, even if it is not unambiguously and autonomously the source of the incorporation of Sections 10 and 11 into Chapter Two.

Sections 10 and 11 of the FAA, providing the procedures and grounds to vacate, modify, or correct an award are not in conflict with Chapter Two or the Convention. Neither Chapter Two nor the Convention prohibits such a motion in regard to a Convention award. Indeed the Convention, while it does not state grounds or procedures for a motion to vacate, does provide in Article V(1)(e) that recognition and enforcement may be refused if an award has been set aside by a competent court of the country in which, or under the law of which, an award was made.

Chapter One of the FAA does not provide for federal subject matter jurisdiction over a motion to vacate, and so in a non-Convention case the motion may be made in federal court only if the parties to the vacatur proceeding have diverse citizenship under the diversity statute, or if a federal question claim was adjudicated in the award and thus could have appeared on the face of a well-pleaded federal complaint had there been no agreement to arbitrate. But in a non-Convention case this allocation of jurisdiction is simply one aspect of a Congressional judgment made when the FAA was enacted in 1925, to overcome hostility to arbitration in state courts not by divesting them of jurisdiction, but only by requiring them to apply federal law where the “commerce” requirement is met.

Chapter Two’s jurisdiction-conferring provisions reflect a policy choice to ensure uniform national application of the Convention and of its core undertaking to secure enforcement of international arbitral awards except of the very limited grounds for refusal or recognition and enforcement that are stated in the Convention. The policy decision very decidedly was the opposite of the one made in 1925 — uniformity is to be achieved by application of federal law by federal judges. Whereas vacatur of an award by a competent court at the seat of the arbitration is one of the grounds for denial of recognition and enforcement stated in the Convention, a construction of Chapter Two that places motions to vacate an award within the federal subject matter jurisdiction conferred by Section 203 is entirely consistent with the underlying goal of uniformity of treatment.

Further, a decision to the contrary could have serious practical consequences. Suppose a motion to vacate a Convention award is brought in state court and may not be removed under Chapter Two. The winning side may feel pressure to seek recognition and enforcement in the state court, to avoid multiple actions. Alternatively the winning side might move in federal court for recognition and enforcement. The state court vacatur movant then would ask the federal court to stay the proceedings until the vacatur action runs its course. If the stay is granted, the federal court effectively cedes control over the pace and the substance of the enforcement process to the state court. If the stay is denied, the federal court effectively adjudicates the vacatur action by permitting the award to become an enforceable federal judgment while the vacatur action may still be in the starting gate. Possibly this situation could be addressed by removal of the vacatur action based on principles of Supplementary Jurisdiction. But this is relatively uncharted territory: Removal would have to be under the general removal statute, not Section 205 of the FAA, and 28 USC 1441(a) permits removal of state court actions over which federal courts would have “original” (not Supplementary) jurisdiction.

Perhaps a bit of common sense helps to solve the problem as well. A motion to vacate a Convention award made by a losing U.S. party against a French party may be adjudicated in federal court, based on diversity if not on the jurisdiction conferred by Chapter Two. If the award is instead against a Canadian party and in favor of a French party, it simply makes no sense that the Canadian party should have lesser access to the federal courts on a matter related to the effectiveness of a Convention award than would a U.S. party. Indeed that outcome discriminates against the foreign party that consented to arbitrate in the United States, giving it different (if not necessarily less favorable) procedural rights under the New York Convention than a U.S. party would have. In this situation, then, the operative principle of statutory construction should be that legislation implementing a multilateral treaty like the New York Convention should be construed where possible so as not to accord different treatment to U.S. nationals and nationals of our treaty partners. This principle should trump the more general principle that grants of federal subject matter jurisdiction should be narrowly construed.

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