The U.S. Eleventh Circuit Court of Appeals en banc overturns Industrial Risk and INPROSTA
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Last year, we wrote about precedent in the U.S. Court of Appeals for the Eleventh Circuit holding that international arbitration awards issued in the U.S. and encompassed by the New York Convention can be vacated only under the grounds enumerated in Article V of the Convention. Now, the Eleventh Circuit en banc has overturned its prior precedent, aligning itself with all other circuits, which hold that the vacatur grounds under the Federal Arbitration Act (FAA), 9 U.S.C. §10 apply to international arbitration awards issued in the U.S.
Corporación AIC, SA v. Hidroeléctrica Santa Rita S.A involved a Miami-seated arbitration between two Guatemalan companies. When the arbitral tribunal ruled in favor of Hidroeléctrica Santa Rita, Corporación AIC sought to set aside the award in the U.S. District Court for the Southern District of Florida. Corporación AIC based its set aside petition on 9 U.S.C. § 10(a)(4), which authorizes the set aside of an arbitral award where the arbitrators have exceeded their powers. The district court, however, dismissed the petition because Eleventh Circuit precedent (Industrial Risk M.A.N. Gutehoffnungshutte GmbH and Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte International GmbH) dictates that Article V of the Convention—not § 10 of the FAA—supplies the grounds for vacatur of an award encompassed by the Convention.
A panel of the Eleventh Circuit upheld the district court’s ruling given the binding precedent, but urged the Court en banc to overturn Industrial Risk and INPROSTA. On April 13, 2023, the Eleventh Circuit en banc did so, holding that, for international arbitration awards issued in the U.S. and encompassed by the Convention, §10 of the FAA supplies the grounds for vacatur. According to the Court, because Chapter 2 of the FAA (which implements the Convention) does not provide grounds for vacatur of international arbitration awards, the grounds found in Chapter 1 of the FAA, §10, (which apply to domestic awards) also apply to awards issued in the U.S. that are encompassed by the Convention. That is so because § 208 of the FAA provides that Chapter 1 of the FAA applies to proceedings brought under Chapter 2 (including those to vacate an international arbitration award) insofar as there is no conflict between the chapters. With this opinion, the Eleventh Circuit is now aligned with the other U.S. courts, an important development given the rise of Miami as an important international arbitration seat.
Accordingly, if you are a party to an arbitration seated in Alabama, Georgia, or Florida—or if you are drafting a contract containing an arbitral clause with a seat in any of these states—you should discuss with counsel whether to ensure that any petition or motion to vacate that you may file in the future is based on the grounds enumerated in § 10 of the FAA and the corresponding case law. Similarly, if you have already filed a petition or motion to vacate based on Industrial Risk and INPROTSA, you should discuss with counsel whether it is appropriate to seek leave from the court to amend your filing. Finally, the grounds enumerated in Article V of the Convention still provide the basis for refusing to recognize and enforce an arbitral award. Therefore, if the opposing party has sought to recognize and enforce an arbitral award in the Eleventh Circuit, you should discuss with counsel whether to oppose that petition or motion on the basis of Article V of the Convention, not on § 10 of the FAA.