The last three segments of the Businessperson’s Federal Arbitration Act FAQ Guide discussed the substantive and procedural requirements for confirming a Chapter One Domestic Award, and answered additional FAQs concerning the confirmation of such awards. (See here, here, and here.) This segment focuses on how confirming Chapter Two Domestic Awards—i.e., domestic awards that fall under the Convention on the Recognition of Foreign Arbitral Awards (the “Convention”)—differs from confirming Chapter One Domestic Awards—i.e., domestic awards that fall under Chapter One of the Federal Arbitration Act only and not under Chapters Two or Three.
This FAQ guide distinguishes between “Chapter One Domestic Awards” and “Chapter Two Domestic Awards.” For our purposes, an award is “domestic” when it is made in the United States, that is, by an arbitrator or panel of arbitrators sitting in the territorial jurisdiction of the United States.
An award made in the United is a “Chapter One Domestic Award” when it falls under Chapter One of the Federal Arbitration Act, but not under Chapters Two or Three, which implement the Convention and the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”).
What is a Chapter Two Domestic Award?
An award is a “Chapter Two Domestic Award” when it is made in the United States, but, for purposes of Section 202 of the Federal Arbitration Act, and Art. I(1) of the Convention, is “not considered” to be a “domestic award.” See Convention, Art. I(1). Such awards ordinarily fall under both the Convention and Section 2 of the Federal Arbitration Award, and thus under Chapters One and Two of the Federal Arbitration Act.
We use the term “Chapter Two Domestic Award,” but courts, commentators, and attorneys frequently refer to such awards as “non-domestic awards,” “U.S. Convention awards,” “Bergesen Awards,” “domestic non-domestic awards,” “non-domestic domestic awards,” or like terms.
The key is whether an award made in the U.S. falls under the Convention. If the award does, then it is a Chapter Two Domestic Award, even if it also falls under Chapter One of the Federal Arbitration Act.
Article I(1) of the Convention defines the universe of Awards that fall under the Convention as (a) “arbitral awards made in the territorial of a State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal[;]” and (b) “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.” Convention, Art. I(1).
Chapter Two Domestic Awards fall into Art. I(1)’s second category, (b), above, “awards not considered as domestic” by U.S. law. Section 202 of the Federal Arbitration Act, in turn, implements Art. I(1) of the Convention by defining the universe of awards that fall under the Convention.
Section 202 does that by defining a broad universe of agreements and awards that fall under the Convention, and then excepting from that universe certain awards that are considered purely domestic:
An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in section 2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states. For the purpose of this section a corporation is a citizen of the United States if it is incorporated or has its principal place of business in the United States.
9 U.S.C. § 202.
The Second Circuit recently explained that a Chapter Two Domestic Award “is an award that is made in the United States because the parties agreed to arbitrate before an arbitrator in the United States, but which nonetheless falls under the New York Convention and Chapter 2 of the FAA for one of two reasons: (1) it was made within the legal framework of another country, e.g., pronounced in accordance with foreign law[,] or (2) it was decided under the laws of the United States but involves either entities that are not U.S. citizens or, even if only U.S. citizens are involved, also involves property located abroad, [or] envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” CBF Indústria De Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 73 (2d Cir. 2017) (citations and quotations omitted; brackets in original).
What Provisions of the Federal Arbitration Act Govern the Confirmation of Chapter Two Domestic Awards?
Confirmation and enforcement of Chapter Two Domestic Awards are governed by the provisions of both Chapter One and Chapter Two of the Federal Arbitration Act. To understand which govern, to what extent, and why, it is helpful to understand that the Convention, and Chapter Two, its implementing legislation, creates two different schemes for the enforcement of arbitration awards falling under the Convention.
Under the Convention the country in which the award is made has “primary jurisdiction over the award” which means that the courts of that country may “set aside or modify an award in accordance with its domestic arbitral law and its full panoply of express and implied grounds for relief.” CBF Indústria De Gusa,850 F.3d at 71 (quotations and citations omitted) (emphasis in original); see Convention, Art. V(1)(e). The “other signatory States are secondary jurisdictions, in which parties can only contest whether that State should enforce the arbitration award.” 850 F.3d at 71 (citations and quotations omitted) (emphasis in original).
Because Chapter Two Domestic Awards are made in the United States, they fall under the U.S. state and federal courts’ primary jurisdiction, and are thus subject to both U.S. domestic arbitration law—that is, Chapter One of the Federal Arbitration Act—and the U.S. arbitration law implementing the Convention—that is, Chapter Two of the Federal Arbitration Act.
As we’ve seen, Section 9 of the Federal Arbitration Act, together with Sections 10 through 13, are the provisions of U.S. domestic arbitration law that govern the confirmation, vacatur, and modification of awards. Each of these provisions are part of Chapter One.
Chapter Two features provisions that govern the enforcement of awards that fall under the Convention. Section 207 provides for confirmation of awards falling under the Convention. It provides that “[w]ithin three years after an arbitral award falling under the Convention is made, any party to the arbitration may apply to any court having jurisdiction under this chapter for an order confirming the award as against any other party to the arbitration.” 9 U.S.C. § 207. “The court shall confirm the award[,]” Section 207 provides, “unless it finds one of the grounds for refusal or deferral of recognition or enforcement of the award specified in the said Convention.” 9 U.S.C. § 207.
Section 208 provides that Chapter One of the Federal Arbitration Act “applies to actions and proceedings brought under this chapter [i.e., Chapter Two] to the extent that [Chapter One] is not in conflict with [Chapter Two] or the Convention as ratified by the United States.”
Chapter Two does not provide for the vacatur or modification of awards. As respects awards that are made in a signatory state other than the jurisdiction where enforcement is sought, and where the award was not made under the laws of the enforcing state, the Convention does not permit U.S. courts to vacate or modify the award, even though Section 208 would appear to permit vacatur or modification of the award under Sections 10 and 11. See CBF Indústria De Gusa,850 F.3d at 71, 73-74; see 9 U.S.C. § 208. The award may be unenforceable under Section 207 if a ground for “refusal or deferral of recognition” under Article V of the Convention is present, but it is not subject to vacatur or modification. See 9 U.S.C. § 207; CBF Indústria De Gusa, 850 F.3d at 71, 73-74
But Chapter Two Domestic Awards fall within the U.S. courts’ “primary jurisdiction,” and so they may be modified or vacated under Sections 10 or 11, which are made applicable by Section 208. CBF Indústria De Gusa, 850 F.3d at 71.
How is Confirming a Chapter Two Domestic Award Different from Confirming a Chapter One Domestic Award?
Prior segments (here, here, and here) described in some detail how Chapter One Domestic Awards are confirmed under Section 9 of the Federal Arbitration Act. Confirming Chapter Two Domestic Awards differs in four key respects:
1. Subject matter jurisdiction and venue;
2. Timing of the application;
3. Proof of agreement and award;
4. Defenses against enforcement; and
5. Consent to Confirmation.
Subject Matter Jurisdiction and Venue
As discussed in a prior segment, Chapter One of the Federal Arbitration Act does not confer on federal courts subject matter jurisdiction to confirm an arbitration award or grant any other Chapter One relief. Under Chapter One the question generally is whether the court would have subject matter jurisdiction over the underlying controversy that is or allegedly is the subject of an arbitration agreement. (See here.)
If an award or agreement falls under Section 202 of the Federal Arbitration Act, and thus under the Convention, Section 203 confers upon federal courts federal question subject matter jurisdiction to confirm an award or grant other Chapter Two relief:
An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States (including the courts enumerated in section 460 of title 28) shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.
9 U.S.C. § 203.
Section 207 also provides for more expansive venue than Section 9. Section 9 permits confirmation proceedings to be brought in “the United States court in and for the district within which such award was made,” unless the parties have agreed to a different court. The United States Supreme Court has interpreted this venue provision to be permissive, which means that venue is proper provided Section 9 or the general venue statute, 28 U.S.C. § 1391, authorizes it. (See here.)
Section 204, which governs venue generally for Chapter Two proceedings provides that “[a]n action or proceeding over which the district courts have jurisdiction pursuant to Section 203 of this title may be brought in any such court in which save for the arbitration agreement an action or proceeding with respect to the controversy between the parties could be brought, or in such court for the district and division which embraces the place designated in the agreement as the place of arbitration if such place is within the United States.” 9 U.S.C. § 204.
Section 204 essentially provides the same scope of venue as does Section 9 as interpreted by the U.S. Supreme Court. (See here.)
But Section 207 may, in appropriate circumstances, provide for more expansive venue than Section 9 or Section 204. For Section 207 provides that “any party to the arbitration may apply to any court having jurisdiction under this chapter for an order confirming the award as against any other party to the arbitration.” Since Section 203 states that “[t]he district courts of the United States. . . shall have original jurisdiction” over any “action or proceeding falling under the Convention[,]” any district court in the United States will have jurisdiction over any action or proceeding falling under the Convention, provided that the district court has personal jurisdiction over the respondent/defendant. See 9 U.S.C. §§ 203, 204, 207; 28 U.S.C. § 1391.
Timing of Application
A person seeking to confirm a Chapter Two Domestic Award is required to do so “[w]ithin three years after an arbitral award falling under the Convention is made. . . .” 9 U.S.C. § 207. As discussed in a prior segment, most courts require that an application be made under Section 9 to confirm a Chapter One Domestic Award “within one year after the award is made. . . .” 9 U.S.C. § 9.
Proof of Agreement and Award
Section 207 imposes some heightened proof requirements for establishing the existence of the arbitration agreement and award. “To obtain the recognition and enforcement mentioned in the preceding article,” states Article IV(1) of the Convention, “the party applying for recognition and enforcement shall, at the time of the application, supply (a) [t]he duly authenticated original award or a duly certified copy thereof; (b) [t]he original agreement referred to in article II or a duly certified copy thereof.” The Second Circuit has explained that “[c]opies of the award and the agreement which have been certified by a member of the arbitration panel provide a sufficient basis upon which to enforce the award. . . .” Bergesen v. Joseph Muller Corp., 710 F.2d 928, 934 (2d Cir. 1983).
Under Section 2 of the Federal Arbitration Act, an arbitration agreement, or the contract containing it, must be in writing, but need not be signed. Fisser v. International Bank, 282 F.2d 231, 233 (2d Cir. 1960); A/S Custodia v. Lessin International, Inc., 503 F.2d 318, 320 (2d Cir. 1974) (per curiam); see 9 U.S.C. § 2 (requiring “[a] written provision. . . or an agreement in writing. . . .”) But the Convention requires agreements falling under it to be signed by the parties unless they “are contained in an exchange of letters or telegrams.” Convention, Arts. II(1) & II(2).
According to Article II(1) of the Convention, “[e]ach Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.” Convention, Art. II(1). “The term ‘agreement in writing[,]’” Article II(2) says, “shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” Convention, Art. II(2).
A majority of circuits has interpreted the “signed by the parties or contained in an exchange of letters or telegrams” requirement to apply to both an “arbitral clause in a contract” and an “arbitration agreement[.]” Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 449 (3d Cir. 2003); Kahn Lucas Lancaster, Inc. v. Lark Int’l Ltd. , 186 F.3d 210, 218 (2d Cir. 1999), partially abrogated on other grounds by Sarhank Group v. Oracle Corp., 404 F.3d 657, 660 n.2 (2d Cir. 2005); but see Sphere Drake Ins. PLC v. Marine Towing, Inc., 16 F.3d 666, 669-70 (5th Cir. 1994) (“signed by the parties” modifies the phrase “an arbitration agreement” but not “an arbitral clause in a contract[;]” arbitration clause in insurance contract not signed by insured therefore fell under the Convention).
That means an arbitration agreement entitled to recognition under the Convention must, in most jurisdictions, be: (a) signed by the parties; (b) contained in a contract signed by the parties; or (c) “contained in an exchange of letters or telegrams.” But, as the U.S. Supreme Court recently held, a person who is not a signatory to such an agreement signed by the named parties may enforce it under the Convention, as implemented by Chapter Two of the Federal Arbitration Act, under “domestic-law equitable estoppel doctrines.” GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, 590 U.S. ___, ____, No. 18-1048, slip op. at 14-15 (June 1, 2020).
Under the G.E. Energy Power Court’s reasoning, the same would be true if were a nonsignatory to attempt to enforce such an agreement under a different domestic-law theory, such as “‘assumption, piercing the corporate veil, alter ego, incorporation by reference, [a] third-party beneficiary theor[y] [or] waiver. . . .’” . Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 631 (2009) (construing Federal Arbitration Act Section 2) (citations omitted); see GE Energy Power, slip op. at 6-10.
Defenses against Enforcement
Section 207 says “[t]he 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.” 9 U.S.C. § 207. Those grounds are set forth in Articles V and VI of the Convention.
Article V(1) lists five of those grounds, stating that “[r]ecognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:”
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.
Convention, Art. V(1).
Article V(2) provides further that “[r]ecognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country.” Convention, Art. V(2).
Article VI authorizes courts to adjourn enforcement proceedings in cases where “an application for the setting aside or suspension of the award has been made to a competent authority [“of the country in which, or under the law of which,” the “award was made”]. . . . Convention, Art. VI (bracketed material quoted from Convention, Art. V(1)(e)). Article VI also authorizes courts, upon “the application of the party claiming enforcement of the award, order the other party to give suitable security.” Convention, Art. VI.
The presence of these defenses to confirmation does not mean that they may be asserted once the three-month deadline for vacating the award has expired. A future segment will address the extent to which, if at all, any of those defenses may be asserted in response to a Section 207 motion to confirm a Chapter Two Domestic Award once the three-month limitation period has elapsed.
Consent to Confirmation
Section 207, unlike Section 9, does not require the parties to consent to confirmation. As discussed in a prior segment, Section 9 requires, as a condition to confirmation, that “the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration. . . .” 9 U.S.C. § 9. The Second and Fifth Circuits have held that this consent to confirmation requirement conflicts with Section 207, and “[Section] 207 [therefore] preempts [Section] 9’s consent-to-confirmation requirement in cases under the Convention. Phoenix Aktiengesellschaft v. Ecoplas, Inc., 391 F.3d 433, 436-37 (2d Cir. 2004) (citing 9 U.S.C. § 208); McDermott Int’l, Inc. v. Lloyds Underwriters of London, 120 F.3d 583, 588-89 & n.12 (5th Cir. 1997).
Please note. . .
This guide, including the instalments that will follow in later posts, and prior instalments, does not purport to be a comprehensive recitation of the rules and principles of arbitration law pertinent or potentially pertinent to the issues discussed. It is designed to give clients, prospective clients, and other readers general information that will help educate them about the legal challenges they may face in arbitration-related litigation and how engaging a skilled, trustworthy, and experienced arbitration attorney can help them confront those challenges more effectively.
This guide is not intended to be legal advice and it should not be relied upon as such. Nor is it a “do-it-yourself” guide for persons who represent themselves pro se, whether they are forced to do so by financial circumstances or whether they elect voluntarily to do so.
If you want or require arbitration-related legal advice, or representation by an attorney in an arbitration or in litigation about arbitration, then you should request legal advice from an experienced and skilled attorney or law firm with a solid background in arbitration law.
Contacting the Author
If you have any questions about arbitration, arbitration-law, arbitration-related litigation, this article, or any other legal-related matter, please contact the author, Phil Loree Jr., at (516) 941-6094 or at PJL1@LoreeLawFirm.com.
Philip J. Loree Jr. is a partner and founding member of Loree & Loree. He has 30 years of experience handling matters arising under the Federal Arbitration Act and in representing a wide variety of clients in arbitration, litigation, and arbitration-related litigation.
Loree & Loree represents private and government-owned-or-controlled business organizations, and persons acting in their individual or representative capacities, and often serves as co-counsel, local counsel, or legal adviser to other domestic, and international, law firms requiring assistance or support.
Loree & Loree was recently selected by Expertise.com out of a group of 1,763 persons or firms reviewed as one of Expertise.com’s top 18 “Arbitrators & Mediators” in New York City for 2019, and now for 2020. (See here and here.)
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