Yasmine Lahlou and Andy Frischknecht Contribute to “International Commercial Arbitration with Sovereign States”

Second Circuit holds U.S. courts lack jurisdiction to vacate foreign arbitral awards: 

Petition to vacate Swiss award does not “fall under” the New York Convention under which only courts at the seat have “primary jurisdiction” to set aside or vacate awards.

Molecular Dynamics, Ltd., et al. v. Spectrum Dynamics Med. Ltd., et al., No. 24-2209-cv, 143 F.4th 70 (2d Cir. July 2, 2025).

Chapter 2 of the Federal Arbitration Act (FAA) incorporates the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), and grants federal courts subject-matter jurisdiction over actions “falling under” the Convention.  9 U.S.C. § 203.  In Molecular Dynamics, the Second Circuit held that this jurisdictional grant does not extend to actions to vacate awards issued in arbitrations seated abroad.

The dispute arose from a failed joint venture predecessor to develop medical-imaging technology between SDBM Limited (SDBM) and Spectrum Dynamics Medical Limited’s (Spectrum).  When the joint venture failed, Spectrum and SDBM filed countervailing claims for breach of contract before the Swiss Chambers’s Arbitration Institution, pursuant to the joint venture’s arbitration agreement.  The agreement provided for arbitration seated in Geneva, Switzerland, but also gave New York courts exclusive jurisdiction “on matters concerning the [arbitration.]”  The Swiss tribunal ultimately awarded Spectrum approximately $14 million in damages, plus fees and costs.

SDBM petitioned the U.S. District Court for the Southern District of New York to vacate the Swiss-made award under Section 10 of the FAA and the New York Convention.  After the district court dismissed the petition, SDBM appealed.

On appeal, the Second Circuit held that the petition did not “fall under” the New York Convention within the meaning of FAA, § 203.  The Court reasoned that the convention was concerned with the recognition and enforcement of arbitral awards.  It does not govern vacatur proceedings, which it reserves for the courts at the seat of arbitration under whose law an award is made.  The Convention thus distinguishes between courts with “primary jurisdiction” and those with “secondary jurisdiction.”  Primary jurisdiction lies with courts in the jurisdiction under whose laws an award is made – i.e., courts at the juridical “seat” – who maintain the authority over an award itself and the power to set it aside.  Secondary jurisdiction lies with the courts in all other signatory States, whose authority is limited to ordering or denying enforcement on the grounds set forth in the Convention.  As the arbitration was seated in Switzerland, the New York court had only secondary jurisdiction and lacked the authority to vacate the award.  Accordingly, the petition to vacate the award under the FAA did not “fall under” the New York Convention and the court lacked subject-matter jurisdiction.

In addressing the parties’ New York forum selection clause, the court held that parties may not, by consent or contract, confer subject-matter jurisdiction where Congress has not.  Thus, the agreement’s grant of “exclusive jurisdiction” to New York courts could not expand the court’s jurisdiction beyond that conferred by FAA, § 203.  However, the court left open whether the result would be different had the parties agreed that the arbitration would be seated in New York, and the hearing merely venued in Switzerland.  In that case, it may be that the parties’ designation of New York law as the procedural law governing the arbitration would make New York the seat and vest the district court with primary jurisdiction and thus subject matter jurisdiction over the vacatur petition.

Read the court’s full decision here.

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Sixth Circuit holds prior arbitration award collaterally estops reinsured from relitigating same claims against a different reinsurer:

Non-mutual collateral estoppel applied to arbitration award that resolved the same issue against the reinsured.

Amerisure Mutual Insurance Co. v. Swiss Reinsurance America Corp., No. 24-1492 (6th Cir. Nov. 4, 2025).

It is generally accepted that arbitration awards are given the same issue preclusive (collateral estoppel) effect as court judgments, precluding parties from relitigating issues decided against them by the arbitrators.  In Amerisure v. Swiss Re, the United States Court of Appeals for the Sixth Circuit applied “non-mutual” collateral estoppel to preclude Amerisure from relitigating an issue decided in its arbitration with one reinsurer in subsequent litigation with another reinsurer.   

The underlying dispute stemmed from thousands of asbestos-related lawsuits filed against Armstrong International, a manufacturer of building materials insured by Amerisure under both primary and umbrella liability policies. Amerisure had purchased several facultative reinsurance policies, including from Allstate and Swiss Re, covering Amerisure’s exposure under the umbrella policies.  As the asbestos claims mounted, Amerisure made indemnity payments to Armstrong and covered its defense costs first under the primary policies and, after the indemnity limits of those policies were exhausted, under the umbrella policies.  Amerisure treated the defense costs as payable “in addition to” the umbrella policies’ indemnity limits.  Amerisure then sought reimbursement for these defense costs from its facultative reinsurers.

Allstate and Swiss Re both refused to pay defense costs beyond the umbrella policy limits, arguing that the reinsured policies only covered defense costs within the limits of the umbrella policy.  The dispute with Allstate proceeded to arbitration, where the panel unanimously found that the umbrella policies only required Amerisure to pay defense costs within the policy limits.  Amerisure sought and obtained judicial confirmation of the award, deeming other aspects of it to be favorable.  Years later, Amerisure brought a declaratory judgment action against Swiss Re, seeking to recover Swiss Re’s putative share of the same category of defense costs under the same policy language.

The Sixth Circuit affirmed the district court’s summary judgment that Amerisure was collaterally estopped by the prior award.  Amerisure had actually litigated and the Allstate tribunal had necessarily decided the central issue whether the umbrella policies required payment of defense costs in addition to policy limits.  The court rejected Amerisure’s argument that collateral estoppel could not apply because the arbitrator’s award did not specifically address Amerisure’s argument that a ‘drop-down’ provision in the umbrella policy required payment of defense costs in addition to limits.  The arbitration record demonstrated Amerisure had fully presented this argument, and the panel’s adverse ruling necessarily rejected it.  A final arbitration award need not explicitly address every sub-issue or argument for collateral estoppel to apply, so long as the record shows the issue to be precluded was raised, litigated, and decided in the arbitration.

The court further held Amerisure had a full and fair opportunity to litigate the issue in the Allstate arbitration, noting that the proceedings included discovery, briefing, hearings, witness examinations, and argument, and that Amerisure was represented by counsel throughout.  The court rejected Amerisure’s contention that the lack of appellate review in arbitration rendered preclusion unfair.  The Federal Arbitration Act provides a procedure and grounds for vacating awards, but Amerisure chose instead to seek judicial confirmation of the award.

The court also rejected Amerisure’s appeals to equity, including that it was unfair to apply collateral estoppel because the arbitration agreement contained an ‘honorable engagement’ provision relieving the arbitrators of judicial formalities and strict adherence to legal principles.  “Although the Allstate arbitration may not have been identical to judicial proceeding in all respects,” it was still “substantially similar in form and scope to” court proceedings, and the “liberal procedures” did not “detract from the basic elements of adjudicatory procedures.”  Moreover, these alleged procedural differences applied to both parties equally, and thus Amerisure could not show “that the arbitration process to any extent was unfair or the decision unreliable.”  Rather than doing equity, the court reasoned, allowing relitigation would encourage gamesmanship, waste judicial resources, and undermine the finality of arbitration.

Finally, on the question of mutuality, the court held that both Michigan and federal law dispense with the requirement of mutuality when collateral estoppel is asserted defensively.  Here, Swiss Re asserted collateral estoppel defensively to prevent Amerisure from relitigating its claimed right to additional payments, which the Allstate arbitration panel had already rejected.

Read the court’s full decision here.

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D.C. Circuit holds that BIT’s incorporation of UNCITRAL Rules did not foreclose judicial review of arbitrators’ jurisdictional determinations:

Whether arbitration agreement existed went to India’s sovereign immunity under the FSIA and thus the court’s subject matter jurisdiction.   

Deutsche Telekom A.G. v. Republic of India, No. 24-7081 (D.C. Cir. Oct. 3, 2025).

 

The Foreign Sovereign Immunities Act (FSIA) grants foreign states presumptive immunity from suit in U.S. courts, subject to enumerated exceptions.  Where immunity applies, U.S. courts lack subject matter jurisdiction, making the immunity question jurisdictional.  The FSIA’s arbitration exception removes immunity for actions to confirm an award against a sovereign where the agreement or award “is or may be governed” by a treaty calling for recognition and enforcement of arbitral awards, such as the New York Convention.

In Deutsche Telekom, the D.C. Circuit held that challenges to the existence of an arbitration agreement are jurisdictional, but challenges that the dispute was outside the scope of the arbitration agreement go to the merits of the enforcement petition.

The dispute in Deutsche Telekom arose from an agreement for the use of two satellites for telecommunication purposes.  The satellite owner, an Indian State-owned company, agreed to lease a certain range of wave frequencies to a private Indian company, Devas Multimedia Private Ltd. (Devas).  Several years later, German investor Deutsche Telekom AG invested nearly $100 million in Devas.  India later repurposed the relevant frequencies and Deutsche Telekom started arbitration in Switzerland pursuant to the German-India Bilateral Investment Treaty (BIT).  The arbitral tribunal rejected India’s jurisdictional challenge that Deutsche Telekom was not a covered “investor” and that its investment was not a “covered investment” under the BIT.  Following further proceedings, the tribunal awarded Deutsche Telekom roughly $93 million.  Swiss courts twice upheld the award, as did courts in Germany and Singapore.

Deutsche Telekom then sought confirmation of the award in the U.S. District Court for the District of Columbia.  India moved to dismiss on the basis of forum non conveniens and immunity under the FSIA.  As to immunity, India raised the same arguments that the dispute involved no investor or covered investment under the BIT, and was therefore outside of the BIT’s arbitration clause.  India reserved the right to raise defenses to enforcement under the New York Convention if its immunity objections were resolved against it.

The district court denied India’s motion.  The court found India’s immunity defense amounted to a merits defense under the New York Convention, because its arguments concerned whether the dispute was outside the scope of the agreement and thus within the arbitrators’ jurisdiction.  It distinguished such scope issues from questions concerning the existence of an agreement to arbitrate, which would be jurisdictional.  The district court then confirmed the award, finding that the BIT had delegated arbitrability questions to the arbitrators, who had already rejected India’s arguments.  The court further held that India’s investor and covered investment arguments were not “colorable” immunity defenses, and India had therefore forfeited any further merits briefing.  The court also held that forum non conveniens was inapplicable in proceedings to confirm international arbitration awards.  India appealed to the D.C. Circuit.

On India’s immunity defense, the D.C. Circuit held that the FSIA’s arbitration exception applied because Deutsche Telekom had shown that there was an arbitration agreement, an arbitral award, and that the New York Convention governed enforcement of the award.  The court agreed that India’s investor and covered investment defenses went to the scope of the arbitration agreement, and thus the merits of the enforcement petition, not the jurisdictional question of immunity.

But the D.C. Circuit held that the district court erred in granting the petition without further considering India’s merits defenses.  Although India’s jurisdictional objection was foreclosed by prior precedent holding that scope questions went to the merits rather than immunity, India’s arguments that these defenses deprived the court of jurisdiction were nevertheless “colorable.”  Thus, the district court erred in precluding India from further briefing its merits defenses, including whether the dispute was outside the scope of the arbitration agreement, as well as additional defenses based on the BIT’s national-security exception and its claim that the underlying investment agreement had been procured by fraud.  A sovereign is entitled to raise “colorable” immunity defenses and proceed to the merits only when jurisdiction is found and upheld on appeal.

On the merits, the D.C. Circuit disagreed with the district court’s finding that the parties had delegated questions regarding the arbitrator’s jurisdiction to the tribunal.  Issues concerning the existence and scope of an arbitration agreement are presumptively for courts to decide, although parties can delegate scope questions to the arbitrators through a “clear and unmistakable” delegation clause. The BIT incorporated the UNCITRAL Rules (Article 21.1), and prior cases have treated such incorporation as sufficient to constitute an agreement to arbitrate arbitrability.  But the court underscored that context matters in determining whether the parties’ adoption of the UNCITRAL Rules constituted a clear and unmistakable delegation of arbitrability questions to the tribunal.  Here, the BIT directs that an award “shall be enforced in accordance with national laws of the Contracting Party where the investment has been made,” which in this case invoked Indian law.  Under Indian law, questions concerning the arbitrator’s jurisdiction are always subject to final judicial review.  In this context, the incorporation of the UNCITRAL Rules merely authorized tribunals to address their own jurisdiction in the first instance, but did not foreclose judicial review of that determination at the enforcement stage. Accordingly, India would be permitted on remand to raise its merits defenses, including its arbitrability defense.

Finally, the court reaffirmed that forum non conveniens is unavailable in award-confirmation proceedings, “where the whole point is to enforce awards against assets in jurisdictions other than where the underlying dispute arose.”

Read the court’s full decision here.

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California federal court holds whether non-signatories may compel or be compelled to arbitrate is a question for the court, notwithstanding delegation clause:

Whether non-signatory is bound to arbitrate goes to the existence rather than the scope of the obligation to arbitrate. 

Avid Holdings, Ltd., et al. v. Alex Kwon, et al., No. 2:24-cv-08196-SPG-PVC (C.D. Cal. Aug. 7, 2025).

Although arbitration is a matter of contract, an arbitration agreement may be enforced by or against a non-signatory when dictated by traditional state law principles, including principles of estoppel.  A non-signatory may bind a signatory to arbitrate when the signatory’s claims rely on the terms of the agreement or are otherwise intimately intertwined with the underlying contract.  A non-signatory may be estopped from avoiding arbitration where it seeks the direct benefits of the underlying contract or where it is alleged to have engaged in concerted misconduct with another signatory founded in or intimately connected with an obligation under the agreement.

In Avid Holdings, a federal court in California held that the threshold question of whether a non-signatory may compel or be compelled to arbitrate under an estoppel theory is a question for the court in the first instance.  This is so even where the arbitration agreement delegates questions of arbitrability to the arbitrators.  But the court underscored the distinction between questions regarding the existence of the obligation to arbitrate and the scope of those obligations.  The former is always for a court, while the parties may agree to arbitrate the latter.  Thus, once the court satisfies itself that a non-signatory may invoke or be bound by an agreement delegating arbitrability to the arbitrators, it is for the arbitrators to determine whether the dispute falls within the scope of the arbitration clause.

The dispute in Avid Holdings arose from a soured business relationship between vaping device manufacturer Avid Holdings (Avid) and its exclusive distributor Next Level Ventures (NLV). Under a 2019 Exclusive Distribution Agreement (EDA), NLV was granted exclusive distribution rights to certain Avid products and a license to use Avid’s trademarks.  In return, NLV was required to meet minimum distribution targets and payment requirements. The EDA contained an arbitration clause requiring disputes to be resolved under the AAA Commercial Arbitration Rules, which grant arbitrators the authority to decide the “existence, scope or validity of the arbitration agreement.”

Avid and its founders Jonathan and Hanna Carfield sued NLV and its CEO and owner, Alex Kwon, alleging that Kwon conspired with certain third parties in a scheme to squeeze Avid out of the business.  The alleged scheme included inducing NLV to miss minimum distribution targets and required payments under the EDA while Kwon acquired control of Avid’s manufacturing facilities, usurped Avid’s trademark, and stole confidential trade secrets and other proprietary information.

Kwon moved to compel arbitration, arguing that Avid’s and the Carfields’ claims relied on and were intertwined with the terms of the EDA.  Avid and the Carfields cross-moved to compel arbitration of whether Kwon could compel arbitration, arguing that the EDA’s incorporation of the AAA Rules delegated this issue to the arbitrators.

The court held that whether Kwon could be compelled to arbitrate was, in the first instance, a question for the court, notwithstanding the delegation of arbitrability to the arbitrators.  Before compelling arbitration, the court must satisfy itself that an agreement to arbitrate exists, which means “the court must resolve any issue that calls into question the formation or applicability of the specific arbitration clause that a party seeks to have the court enforce.”  This is the case even where “the arbitration agreement has delegated questions of arbitrability to the arbitrator.”

The court therefore proceeded to determine whether Kwon, as a non-signatory, could compel Avid and the Carfields to arbitrate.  It held that Avid’s and the Carfields’ claims were intimately intertwined with the EDA at least to the extent they alleged that Kwon’s alleged conduct included inducing NLV to miss payments under the EDA as part of its scheme to squeeze Avid out of the business.  This, the court held, was sufficient to satisfy it that Kwon had a basis to invoke the arbitration agreement and compel both Avid and the Carfields to arbitrate.  Although the Carfields were not themselves signatories to the EDA, they were bound to arbitrate because they were “affiliates” of signatory Avid, as defined in the EDA.  But given the delegation clause, Kwon could only “compel arbitration of the question of arbitrability” of the dispute under the EDA.  Because the agreement required the arbitration of arbitrability, the arbitrators would decide whether the claims against Kwon fell within the scope of the arbitration clause.

Read the court’s full decision here.