In reviewing provisions of New York Arbitration Convention and Federal Arbitration Act relating to judicial confirmations of arbitral awards, Second Circuit concludes that, in Convention cases, 9 U.S.C. Section 207 preempts FAA Section 9's "consent-to-confirmation" requirement so that U.S. courts may confirm foreign arbitral awards even if arbitration agreement does not specifically say so
In 1993, Phoenix Aktiengesellschaft (a German corporation) licensed Ecoplas (a U.S. corporation) to produce and sell "Phoenix polyester - (UP) - moulding compounds." To do this, Phoenix passed on confidential information and technical expertise to Ecoplas. The licensing agreement required arbitration of relevant disputes before the International Chamber of Commerce (ICC) in Zurich, Switzerland, with Swiss law applying. Phoenix later decided to sell certain assets to Bakelite AG. When Phoenix sought Ecoplas' consent to the transfer of the licensing agreement, however, Ecoplas objected and declared the agreement terminated.
Phoenix next brought a complaint before the ICC's International Court of Arbitration (ICA). It argued that the original licensing agreement between the parties continued in effect and that Ecoplas had failed to pay the licensing fees. Agreeing, the ICA awarded Phoenix about $100,000 in damages plus costs. Because Ecoplas failed to pay, Phoenix filed suit in New York federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Convention") (June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997).
Ecoplas argued that the district court lacked jurisdiction because the arbitration agreement did not reflect the parties' consent to judicial confirmation of the arbitration award, as required by Section 9 of the Federal Arbitration Act (FAA), 9 U.S.C. Sections 1-16, 201-08, 301-07 (2000).
Furthermore, Ecoplas maintained, under Article (V)(1)(b) of the Convention, the district court should not enforce the arbitration award because the arbitrator had refused to hear certain evidence as to the usefulness of Phoenix' technical advice.
Nevertheless, the district court granted Phoenix' motion to confirm the award. Ecoplas appealed. The U.S. Court of Appeals for the Second Circuit affirms. It holds that 9 U.S.C. Section 207 of the FAA preempts the consent-to-confirmation requirement of 9 U.S.C. Section 9 in cases based on the Convention.
The Court notes that this case presents an unresolved issue under the FAA, namely, the scope of the authority of federal courts under 9 U.S.C. Sections 9 and 207 to confirm an arbitration award. Section 9 provides that "[i]f the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, ... then ... within one year after the award is made any party ... may apply to the court so specified for an order confirming the award ..."
Section 207 provides that "within three years after an arbitral award ... is made, any party to the arbitration may apply to any court having jurisdiction under this chapter for an order confirming the award against any other party to the arbitration."
The Court explains that the U.S. did not join the 1958 Convention, but later implemented it by enacting Chapter 2 of the FAA (now 9 U.S.C. Sections 201-208). Under Section 208, the pre-Convention provisions of the FAA, i.e., Chapter 1 (9 U.S.C. Sections 1-16), continue to apply to the enforcement of foreign arbitral awards except to the extent that Chapter 1 conflicts with the Convention or with Chapter 2.
Conformity with that "consent to confirmation" requirement is only necessary if Section 9 is consistent with Section 207. If the provisions conflict, the latter provision preempts the former (see 9 U.S.C. Section 208), and consent is unnecessary for confirmation by a court.
"Section 207 does not in any way condition confirmation on express or implicit consent. Because the plain language of Section 207 authorizes confirmation of arbitration awards in cases where Section 9's consent requirement expressly forbids such confirmation, we hold that the two provisions conflict. Accordingly, we hold that Section 207 preempts Section 9's consent-to-confirmation requirement in cases under the Convention. See 9 U.S.C. Section 208. The only other circuit court to rule on this issue has reached the same conclusion. See McDermott Int'l, Inc. v. Lloyds Underwriters of London, 120 F.3d 583, 588-89 & n. 12 (5th Cir. 1997)." [Slip op. 9-10]
The Court also sees no merit in Ecoplas' claim that it was unable to present its case in arbitration and thus that the Court should not enforce the award on that ground. "Under Article V(1)(b) of the Convention, an exception to enforcement arises where "the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or the arbitration proceedings or was otherwise unable to present his case.' See also 9 U.S.C. Section 207 ("The court shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.')."
"Ecoplas contends that the arbitral panel refused to permit it to substantiate its main defense by denying admission of testimony from Ecoplas' technical staff regarding the defectiveness of the "transferred know-how.' We find the Article V(1)(b) claim meritless."
"The record reveals that Ecoplas received an opportunity to raise the defense question and that the arbitrator rejected it on the merits. Because the contract between Ecoplas and Phoenix required only transfer of sufficient know-how to manufacture Phoenix's compounds, and not to develop them for new applications, the arbitrator found that the testimony concerning the transfer of additional development know-how was irrelevant to whether the contract had been breached. Given the arbitrator's careful consideration of the issue, Ecoplas's claim that it was "unable to present [its] case' is groundless." [Slip op. 14-15]
Citation: Phoenix Aktiengesellschaft v. Ecoplas, Inc., 2004 WL 2828941; No. 03-9000 (2d Cir. Dec. 10, 2004).
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