Overview
First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. This month we cover the Eleventh Circuit’s recent grant of en banc review of its May 2022 decision in Corporacion AIC, SA v. Hidroelectrica Santa Rita S.A., to reconsider its precedent barring courts from vacating international arbitral awards rendered in the United States under broader domestic standards.
This en banc review was granted because of the court’s concern that the Eleventh Circuit precedent is out of step with the Supreme Court’s decision in BG Group Plc v. Republic of Argentina, 134 S. Ct. 1198 (2014). While federal courts generally agree that grounds for the refusal to recognize an arbitration award made outside of the United States, as specified in international arbitration conventions, are exclusive; most circuits have held that non-domestic awards—awards made in the United States under local law but subject to an international arbitration convention—could also be vacated under Chapter 1 of the Federal Arbitration Act (FAA), which applies to domestic arbitration. The Eleventh Circuit is the only federal court that has refused to consider Chapter 1 grounds and specifically requires a party to raise one of the seven grounds enumerated in Article V of the New York Convention, as incorporated by Chapter 2 of the FAA, to vacate a non-domestic award made in the United States. Deference to the New York Convention currently makes the Eleventh Circuit’s pro-arbitration approach an attractive forum for international arbitration. But this deferential position may soon change.
Background
The underlying case arises from a contract dispute between two Guatemalan companies, Corporacion AIC (AIC) and Hidroelectrica Santa Rita SA (Hidroelectrica), and the associated arbitration proceedings between them. In 2012, AIC contracted with Hidroelectrica to provide engineering, procurement, and construction for a hydroelectric dam project in Guatemala. However, Hidroelectrica discontinued the project the following year when it issued a force majeure notice in response to opposition by the local community—excusing performance and canceling the contract.
Pursuant to the contract, Hidroelectrica initiated arbitration proceedings against AIC seeking reimbursement of the advance payments it had already made. In October 2018, the International Chamber of Commerce tribunal found in favor of Hidroelectrica and ordered AIC to return more than $7 million in advanced payments. AIC was only allowed to keep the money that it had earned pursuant to the contract, equaling an excess of $2.5 million according to the arbitration opinion.
Dissatisfied with the decision, AIC filed suit in a Florida district court, petitioning to vacate the award because “the arbitration panel had exceeded its powers” under Chapter 1 of the FAA and Article V(1)(e) of the New York Convention. Following Eleventh Circuit precedent the district court denied AIC’s claim, stating that the Eleventh Circuit did not recognize an “exceeds powers” challenge under the New York Convention. An Eleventh Circuit panel affirmed the district court’s ruling.
Analysis
At its core, this case is about the interplay between the NY Convention and Chapter 1 of the FAA. Taking a unique approach, the Eleventh Circuit has long held that non-domestic awards can be vacated only on the same grounds applicable to foreign awards, under Chapter 2 of the FAA and the NY Convention. See Industrial Risk Insurers v. M.A.N. Gutehoffnugshutte GmbH, 141 F.3d 1434 (11th Cir. 1998); see also Iversiones Y Procesadora Tropical Inprotsa, S.A. v. Del Monte Int’l CambH, 921 F.3d 1291 (11th Cir. 2019), cert denied, 140 S. Ct. 124 (2019); Earth Science Tech. Inc. v. Impact UA, Inc., 809 Fed Appx. 600 (11th Cir. 2020); Gulfstream Aerospace Corp. v. OCELTIP Aviation 1 Pty. Ltd., 31 F.4th 1323 (11th Cir. 2022).
Despite this long-standing circuit precedent, some believe that the Supreme Court abrogated Industrial Risk by its decision in BG Group Plc v. Republic of Argentina. Specifically, AIC argues that the Supreme Court “‘implicitly contradicted’ Industrial Risk’s holding that a non-domestic award may be vacated only on the grounds explicitly enumerated in Article V of the Convention.” (En Banc Petition p. 11 (citing Majority Op. at 11)).
Thus, it is highly likely that upon reconsideration the en banc Eleventh Circuit will reverse the previous decision to realign their precedent with the Supreme Court, at least if the strongly worded panel opinion represents a majority of the court’s thinking. In the May panel decision, the court stated: “we think we’ve gotten it wrong in Industrial Risk and Iversiones, and an en banc panel of this Court should hold that we can review international arbitration awards based on Chapter 1 of the FAA under Article V(1)(e) of the New York Convention when the United States has primary jurisdiction.” Likewise, the concurring opinion concluded that “aspects of Industrial Risk and Iversiones were wrongly decided, and . . . we should convene en banc to correct the error.” The panel also observed that Industrial Risk is at odds with the Supreme Court’s decision in BG Group.
The issue presented before the en banc court is important to international commercial arbitration broadly. It has been estimated that between seventy and ninety percent of international contracts include a mandatory arbitration clause. The Eleventh Circuit, in particular, has seen a rising number of international arbitrations, as stated by Judge Jordan in his concurring opinion.
Accordingly, it will be important to track the Eleventh Circuit’s en banc decision to see if the court will realign with the Supreme Court or forge a new path in the narrow space left open after BG Group.
