The case of Jiangsu Beier Decoration Materials v. Angle World, 52 F.4th 554, (3d. Cir. 2022) 2022), teaches us the proper inquiry on confirmation of arbitration awards and perhaps the importance of the lost art of letter writing. In Jiangsu, an international dispute arose that was originally resolved by international arbitration in China and then sought to be enforced in Pennsylvania. The case is instructive on contract formation of distribution agreements and international arbitration award enforcement.

Was There an Agreement to Arbitrate Related to the Distribution Agreement?

Jiangsu is a manufacturer of flooring products based in China and Angle World is its exclusive distributor based in Pennsylvania. In June 2018, the parties signed a memorandum of understanding, under which Angle World agreed to pay Jiangsu $528,227.59 within six months (the June MOU). The June MOU did not contain an arbitration clause. On July 10, 2018, a representative from Jiangsu sent Angle World a revised agreement via email (the July MOU) which included an arbitration clause requiring arbitration before the China International Economic and Trade Arbitration Commission (CIETAC). The parties met thereafter to finalize the July MOU, but it was never signed. The July MOU had a revised payment plan and the payment plan was not fully performed. Jiangsu filed a demand for arbitration before CIETAC.

Chinese Court Decided There Was an Agreement to Arbitrate Under Chinese Law

Angle World objected to CIETAC’s jurisdiction over the dispute, and the matter was referred to the Beijing Fourth Intermediate People’s Court (the Chinese court) to determine arbitrability. The Chinese court found that the arbitration clause in the July MOU, was enforceable because, “the parties entered into or modified the contracts by email during the course of long-term business,” and “the July MOU was an adjustment and supplement to the June MOU.”

Chinese Arbitration Panel Awards Damages

The panel determined that the July MOU was enforceable under both the United Nations Convention on the International Sale of Goods (CISG) and Chinese law and ruled in favor of Jiangsu on the merits of the dispute, finding that Angle World had breached the July MOU by failing to make all payments required thereunder. The panel ordered Angle World to pay $624,227.59 for the breach, plus attorney fees.

Can the Award be Confirmed and Enforced in the United States?

International arbitration awards are afforded great deference as a matter of international comity. A treaty, referred to as The New York Convention, as implemented by Chapter 2 of the Federal Arbitration Act (FAA), authorizes the recipient of a foreign arbitration award to petition a district court to enforce it. Before confirming a foreign award, however, a district court must independently assure itself that the parties consented to arbitrate the merits of their underlying dispute. In this case, the district court determined there was not a meeting of the minds to arbitrate and declined to enforce the Award. Jiangsu appealed to the U.S. Court of Appeals for the Third Circuit.

What Was the Proper Role of the District Court?

The New York Convention requires signatories to recognize a written arbitration agreement that is “contained in an exchange of letters” between the parties. Jiangsu claims that its email correspondence with Angle World created an “exchange of letters” enforceable under the convention. The circuit court reminds us that a petition to enforce an arbitration award is intended to be a summary proceeding, which is not necessarily intended to be a formal judicial proceeding. The instructions are that the district court shall confirm the award absent the grounds identified in the New York Convention for declining to confirm the award. The district court may also decline to confirm an award based on public policy. In determining whether to confirm an award to judgment, the district court must determine that the parties agreed in writing to arbitrate. The New York Convention allows the agreement to be “contained in an exchange of letters,” however, the record to the district court was not clear that an exchange of letters supported the existence of an agreement to arbitrate.

Remand to the District Court

The circuit court held that the district court did not properly have the opportunity to determine whether the “exchange of letters” established the prerequisite to arbitration confirmation under the New York Convention. The petition to confirm filed by Jiangsu was bare bones and did not contain the letter exchanges for independent review by the district court. Remand suggested that the petition be fleshed out in this manner.

Jiangsu argued that the independent determinations of the Chinese court and the CIETAC panel, both holding that an arbitration agreement existed under Chinese law was sufficient, and that the district court defer to their rulings. The circuit court required independent determination by the district court of the agreement to arbitrate:

Chapter 2 of the FAA requires a district court “to determine independently the existence of an agreement to arbitrate even though an arbitration panel in a foreign state already had rendered an award.” A court need not, and should not, defer to a foreign panel’s finding of arbitrability because this would “render the prerequisites to enforcement of an award set forth in Article IV of the New York Convention superfluous” and make them “a meaningless formality.”

The circuit court also decided that although the Chinese tribunals decided issues of Chinese law, and would be entitled to deference to those issues, the tribunals did not decide issues of the New York Convention, and accordingly, were not entitled to deference on issues not decided. For these reasons, the district court decision was vacated and the remand suggested that the petition should better develop the factual record to allow the district court to perform its duties.

Reprinted with permission from the February 16, 2023 issue of The Legal Intelligencer© 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.