Arbitration and New York Convention — Federal Jurisdiction — Limited Power of Secondary Jurisdiction

The Fifth Circuit in Gulf Petro Trading Co. v. Nigerian Nat’l Petroleum Corp., 2008 U.S. App. LEXIS 256 (5th Cir. Jan. 7, 2008), faced serious charges that an international arbitration tribunal had accepted a $25 million bribe to decide the case in favor of the defendant. After receiving an unsatisfactory award but before it found evidence of the bribe, the plaintiff unsuccessfully challenged the award in Switzerland, which was the primary jurisdiction under the New York Convention (its law governed and the arbitration was venued in its territory). After finding the bribe evidence, the plaintiff could not challenge the award again in Switzerland because it was unable to persuade the authorities to commence criminal proceedings (a prerequisite, according to the opinion). It therefore commenced the present RICO / common law fraud lawsuit in Texas federal court. Held:

1. No Subject Matter Jurisdiction. “[A] United States court sitting in secondary jurisdiction lacks subject matter jurisdiction over claims seeking to vacate, set aside, or modify a foreign arbitral award.”

2. Impermissible Collateral Attack Determined by Harm Alleged. “Gulf Petro's harm was not caused by the alleged acts of wrongdoing in and of themselves.... Rather, it resulted from the impact that these acts had on the Final Award. The relief Gulf Petro seeks — the award it believes it should have received, as well as costs, expenses, and consequential damages stemming from the unfavorable award it did receive — shows that its true objective in this suit is to rectify the harm it suffered in receiving the unfavorable Final Award. Under the framework of the New York Convention, the proper method of obtaining this relief is by moving to set aside or modify the award in a court of primary jurisdiction. Though cloaked in a variety of federal and state law claims, Gulf Petro's complaint amounts to no more than a collateral attack on the Final Award itself.”

Two notes. First, the Fifth Circuit took pains to limit its holding to international, as opposed to domestic arbitrations. Second, it stressed the plaintiff had already had the opportunity for judicial review, and it was effectively complaining about the absence of a right to multiple reviews (precluded by the law of Switzerland, the primary jurisdiction).

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