Summary

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SUMMARY OF ARGUMENT

International arbitration, like its domestic counterpart, fundamentally rests on principles of contract. Consequently, as the Supreme Court and this Court have repeatedly and recently advised, "the federal policy [under the Federal Arbitration Act ("FAA")] is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate." Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 476 (1989); see also Certain Underwriting Members of Lloyds of London v. Fla., Dep't of Fin. Servs., 892 F.3d 501, 508 (2d Cir. 2018) (describing private agreements to arbitrate as "creature[s] of contract"; explaining the courts' role in "hold[ing] parties to their bargain"). Provided that agreements are enforced "according to their terms," Volt, 489 U.S. at 476, the results of an arbitration - namely awards - should be (and are) presumptively enforceable subject only to the limited grounds set forth in Section 10 of the FAA and, where applicable, the corresponding articles of international treaties (like Article V of the New York Convention). See Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 586 (2008); Parsons & Whittemore Overseas Co. v. Societe Generale de L'Industrie du Papier (RAKTA), 508 F.2d 969, 972-73 (2d Cir. 1974).

That's how international arbitration should (and generally does) occur, and why international arbitral awards, in practice, should almost always be enforced.

This appeal presents the rare exception. In a dispute with hundreds of millions of dollars at stake, the parties bargained to resolve their differences under the AAA Commercial Rules. JA189 ¶3(d); JA294 ¶18.2.3.3. Those Rules give binding effect to an arbitration clause that entitles each party to appoint an arbitrator. See JA207; AAA Rules R-13. Those Rules also impose a continuing obligation on the arbitrators, the parties and their representatives to disclose "any circumstance likely to give rise to justifiable doubt as to the arbitrator's impartiality or independence, including. . . any past or present relationship with the parties or their representatives." JA207; AAA Rules R-17(a). Those Rules generally allow the parties to modify their terms. See JA201; AAA Rules R-1(a).

Here, the parties did just that by embedding an additional obligation directly in the arbitration clause: "The arbitrator(s) shall be and remain at all times wholly independent and impartial." JA189 ¶3(c); JA294 ¶18.2.3.3 (emphasis added).

Despite these rules and detailed bargained-for provisions, they weren't followed here. One of the arbitrators ("Arbitrator Smit") did not "remain at all times wholly independent and impartial," id. At a minimum, both he and Andes' lead counsel2 did not make the necessary disclosures to enable Appellant to assess that proposition and to request disqualification. Specifically, they failed to disclose that Arbitrator Smit was simultaneously serving alongside Andes' lead counsel in another arbitration under the rules of an entirely different institution (the International Chamber of Commerce or "ICC"). This nondisclosure, involving contemporaneous service with a party's counsel, was very different from a typical case about past concurrent service with another arbitrator. Cf. IBA Guidelines on Conflicts of Interest ¶4.3.3 (2014). Under these unprecedented circumstances, joint service meant that he and Andes' lead counsel would necessarily have ex parte communications, including on matters such as how to conduct an arbitration, prior to any evidentiary hearing in this case. The content of such ex parte communications almost certainly would never be revealed to Appellant due to the confidential nature of an ICC proceeding and the immunity that arbitrators typically enjoy. See ICC Rules of Arbitration Art. 22(3) (confidentiality of ICC proceedings); Peter B. Rutledge, Toward a Contractual Approach for Arbitral Immunity, 39 Ga. L. Rev. 151 (2004). Moreover, the record contains evidence, wholly ignored in the lower court's opinion, that under prevailing ICC practice, a "wing arbitrator" (like Arbitrator Smit) often plays a role in the selection of the tribunal's chair (like Andes' lead counsel). See Melissa Hunt Decl., Dkt.30 ¶26 (explaining how, under ICC Rules, the chair "is typically selected based on the recommendation of the party-appointed arbitrators"); Expert Report of Prof. Jack Coe, Jr., Dkt.38-10 ¶9 & n.14.

While failing to disclose this simultaneous service with Andes' counsel, Arbitrator Smit disclosed other, far more innocuous facts and relationships. This incomplete disclosure left Appellant with the distinct (but erroneous) impression that there was no need to request disqualification. Consequently, Appellant participated in this arbitration with the distinct (but erroneous) misimpression about whether Arbitrator Smit was "remain[ing] at all times wholly independent and impartial" as the parties' agreement required. See JA189 ¶3(c); JA294 ¶18.2.3.3. Of course, Appellee was not laboring under a similar misimpression because its lead counsel was aware of, indeed participating in, that other proceeding. Had Appellant known of the simultaneous service, the opportunity for ex parte contacts, and the private knowledge that Andes' counsel was gleaning before the evidentiary hearing in this case, it could have swiftly requested Arbitrator Smit's removal pursuant to the AAA rules. See JA209; AAA Rules R- 18(c); Melissa Hunt Decl., Dkt.30 ¶26. Instead, Appellant was placed on an unequal playing field relative to Appellee. In this critical respect, the arbitration agreement was not enforced according "to the contractual rights and expectations of the parties." Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 683 (2010) (quoting Volt, 489 U.S. at 479). Under these unprecedented circumstances, the award should be vacated. To be sure, that is not because of mere simultaneous service or mere nondisclosure; it is the combination, in light of the parties' agreement, occurring before the evidentiary hearing in this arbitration but discovered only after its conclusion, that requires the highly unusual remedy of vacatur.

Even if the award should not be vacated at this time, it certainly should not be confirmed. Apart from misapplying the vacatur standards, the district court's opinion also erroneously collapsed two distinct legal inquiries - vacatur and confirmation - even though those inquiries are subject to entirely different analytic regimes under binding Second Circuit precedent, see Zeiler v. Deitsch, 500 F.3d 157, 164 (2d Cir. 2007); Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys "R" Us, Inc., 126 F.3d 15, 20-23 (2d Cir. 1997). Vacatur (at least under Second Circuit precedent) is subject to the grounds set forth in Section 10 of the FAA. By contrast, confirmation is subject to an entirely different set of defenses set forth under Article V of the New York Convention. See 9 U.S.C. §207; Yusuf, 126 F.3d at 20. Before confirmation could occur, the district court needed to resolve the parties' distinct and fully briefed disagreement over the application of the Article V defenses. See 9 U.S.C. §207. Those defenses, among others, include whether "[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties. . . . " Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. V, §(1)(d), June 10, 1958, 21 U.S.T. 2517, 2520 (entered into force Dec. 29, 1970). Applying that very defense, this Circuit has refused to enforce an award where the parties' agreed-upon procedures governing the tribunal's composition were not followed. See Encyc.

Universalis, S.A. v. Encyc. Britannica, Inc., 403 F.3d 85 (2d Cir. 2005). That's precisely what occurred here when the tribunal included an arbitrator who, contrary to the parties' agreement, failed to "remain at all times wholly impartial and independent" and ultimately rendered an award. See JA189 ¶3(c); JA294 ¶18.2.3.3. Indeed, Appellant advanced that defense for opposing confirmation in its cross-motion for opposition. See Resp'ts Mem. of Law in Opp'n to Pet. to Confirm Arbitration Award 12-15. But that argument (indeed the entire motion) was entirely ignored by the district court. See SPA1-9. Instead, the court leapt straight from the (erroneous) conclusion that the award should not be vacated to the ipse dixit that the award, therefore, should necessarily be confirmed. See SPA9 (concluding, after only considering grounds for vacatur, that the "petition to confirm the Award is granted"). If reversal with instructions to vacate is not the proper remedy here, this independent legal error surely warrants reversal.

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April 5, 2022 - Peter B. Rutledge

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Footnotes omitted