Eleventh Circuit Emphasizes Deference Granted to Arbitration Awards
Construction and Procurement Law News
It is crucial to carefully consider dispute resolution provisions prior to the execution of an agreement, especially in light of the binding nature of arbitration awards. The Eleventh Circuit Court of Appeals, the federal appeals court encompassing Alabama, Florida, and Georgia, recently reaffirmed the strong federal policy favoring arbitration. The Court’s ruling emphasizes the broad deference courts grant to arbitration awards. As seen in this case, this can be especially true for international disputes.
In Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int'l GmbH, the Buyer enforced the parties’ international arbitration provision and brought claims against Seller for allegedly selling a portion of its pineapple supply on the open market - pineapples grown from seeds provided by Buyer to Seller to produce a supply for Buyer’s exclusive benefit.
The Seller argued that Buyer did not actually have exclusive ownership of the seeds and that its representation of exclusive ownership at the time of contracting fraudulently induced Seller to enter the agreement. The arbitral tribunal disagreed and found in Buyer’s favor, awarding 26 million dollars in damages plus attorneys’ fees and costs.
The Seller promptly filed a motion with the tribunal requesting that it adjust its damages award. The tribunal denied the motion on grounds that it did not have authority to revisit the substantive merits of its award.
Seller sought to vacate this award in federal district court, where the Buyer succeeded in a motion to dismiss. The Buyer argued that Seller failed to assert a valid defense under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”), commonly known as the New York Convention. The Convention, ratified by Congress, provides jurisdiction for United States courts to recognize and enforce foreign arbitral awards and agreements and sets forth specific grounds for which a party can move to vacate arbitration awards. One of the reasons to vacate an award as set forth in the Convention is rooted in a public policy argument. Namely, a court may vacate an award if the “recognition or enforcement of the award would be contrary to the public policy of that country.”
In this case, the district court found that Seller’s motion was not grounded in a valid defense under the Convention. The court explained that to entertain Seller’s motion would allow similar requests for vacatur whenever a party merely disagreed with an arbitrator’s decision and would undermine “this country’s public policy favoring arbitration as an efficient means for resolving disputes.”
On appeal, the Eleventh Circuit agreed, upholding the district court’s decision. In so doing, the Eleventh Circuit summarily dismissed Seller’s request to reconsider the tribunal’s award of damages. The Court explained that “[i]t does not matter whether the tribunal’s interpretation is correct . . . the tribunal at least arguably interpreted the contract. Thus, the tribunal did not exceed its authority.
Finally, the Court considered Seller’s argument that the award violated the public policy defense embodied in the Convention. Seller argued that the tribunal did not adequately consider its fraud in the inducement claim and thus the award violated the public policy exception of the Convention. The Eleventh Circuit found no merit in this argument. Primarily, it noted that consideration of a substantive claim, such as the one in question, would run contrary to contractual arbitration clauses, allowing re-litigation of claims that are subject to binding arbitration. The Court went on to explain that the “public-policy defense under the Convention is very narrow. It ‘applies only when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.’”
This case reaffirms the longstanding public policy favoring arbitration. Courts give great deference to arbitration awards and will only intervene in limited circumstances. Arbitration is favored because of its binding nature – its ability to efficiently and effectively deal with disputes and relieve the court system from juggling nuanced subject matters (such as construction cases) that are not well served by a judge or jury without such expertise or know-how.
Parties entering into agreements with arbitration clauses should keep in mind the deference granted to arbitration and the finality that is typical for most awards. In practice, this means that dispute resolution clauses should be carefully and specifically drafted, anticipating at all times the worst-case scenario – a loss in arbitration. Although the public policy and deference granted to arbitration awards are likely to remain steadfast, there are protections a party can build into an agreement to prepare for the worst-case scenario. Prior to executing an agreement, one would be wise to discuss options with counsel before executing any binding arbitration clause. The tried and true idiom – hope for the best but prepare for the worst – is especially true when considering dispute resolution clauses. Of course, one must also remember that undermining the enforceability of an arbitration award—thinking of your loss—will favor the other side if it is the loser. The original (and remaining) intent of arbitration clauses in construction was to provide speedy, economical, and final resolution of a project dispute.
This article, "Eleventh Circuit Emphasizes Deference Granted to Arbitration Awards," was published in the Bradley Construction and Procurement Law Newsletter for the first quarter of 2020.