THE U.S. ELEVENTH CIRCUIT OVERULES ITS DECADES-LONG POSITION ON ANNULMENT OF INTERNATIONAL ARBITRAL AWARDS ISSUED IN THE UNITED STATES
For more than 20 years the U.S. Court of Appeals for the Eleventh Judicial Circuit (with jurisdiction over federal cases originating from Alabama, Florida and Georgia), had sustained that the grounds to seek the annulment of a non-domestic arbitral award rendered in the United States where exclusively those included in Article V of the New York Convention and not the grounds set out in U.S. domestic law, mainly adopted in Chapter 1 of the Federal Arbitration Act (“FAA”). A non-domestic arbitral award is one issued by a panel seated in the United States but arising out of a relationship which is international in nature, thus falling under the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention. Now, in Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A., No. 20-13039, 2023 U.S. App. LEXIS 8887 (11th Cir. April 13, 2023), the Court in banc has decided to join the other courts of appeals in extending the grounds for annulment applicable to domestic awards to non-domestic awards. A copy of the decision can be accessed at https://media.ca11.uscourts.gov/opinions/pub/files/202013039.enb.pdf.
The 11th Circuit’s long-standing position on annulment of non-domestic awards is developed in two decisions. In Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998), the Court refused to review an arbitral award rendered in Tampa, Florida based on the moving party’s assertion that the award was “arbitrary and capricious”, a non-statutory ground to vacate a domestic arbitral award. Likewise, in Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH, 921 F.3d 1291 (11th Cir. 2019), the Court also refused to vacate an award issued in Miami, Florida on grounds that the arbitration panel had “exceeded their powers” within the meaning of 9 U.S.C. § 10(a)(4) of the FAA—a ground not specifically provided by the New York Convention.
The 11th Circuit’s position arising out of these opinions was in conflict with the holding of other courts of appeals. These courts correctly maintain that the grounds for annulment of any arbitral award rendered in the United States, whether falling under the FAA or the New York Convention, are those set out in U.S. domestic law. As such, the 11th Circuit’s rationale had received substantial criticism from scholars, including the American Law Institute in its Restatement of the Law, U.S. Law of Int’l Com. Arbitration and Investor-State Arbitration (ALI Proposed Final Draft 2019). As a matter of fact, many scholars had called out the 11th Circuit for refusing to review its position on the grounds for annulment even after U.S. Supreme Court, in BG Group PLC v. Republic of Argentina, 572 U.S. 25, 44-45, 134 S. Ct. 1198, 1212-13, 188 L. Ed. 2d 220 (2014), had considered the annulment of a non-domestic arbitral award under the FAA.
With Corporación AIC, the 11th Circuit has finally agreed to modify its long-standing criteria and align with other U.S. courts of appeal. This decision equals the annulment of non-domestic arbitral awards to that applicable to domestic awards (both falling under the FAA), a very convenient development for practitioners. From now on, a moving party will be able to seek the annulment of a non-domestic award issued in Florida asserting the existence of any of the grounds set forth in the FAA (for example, that the arbitrators exceeded their powers) or any of the non-statutory grounds developed by U.S. courts (for instance, that an award is arbitrary or capricious). Although most of the grounds of annulment included in the FAA coincide with the reasons not to recognize a foreign arbitral award under the New York Convention, it is generally accepted that the grounds for annulment of the FAA are slightly broader than the grounds for non-enforcement of the New York Convention.
For practitioners, Corporación AIC is also a welcomed development as it shows a more scientific approach by the 11th Circuit in resolving international arbitration cases. Previous opinions by the 11th Circuit on arbitration issues may have lacked a deep analysis of fundamental concepts. Only two years ago, the U.S. Supreme Court reversed a decision of the 11th Circuit (Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637, 1645 (2020)) that was clearly mistaken. In Corporación AIC it can be observed a laudable effort by the Court to establish clear and sounds principles applicable to the annulment of international awards rendered in the United States.
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