The US Court of Appeals for the Second Circuit has reversed a decision by the US District Court for the Southern District of New York that had denied both confirmation and enforcement of a Paris-seated ICC arbitration. The award was rendered against a defunct company and CBF, the award creditor, sought enforcement against alleged alter-egos of the debtor. The District Court concluded that, based on the text of the New York Convention and chapter two of the Federal Arbitration Act (FAA), award creditors must first obtain confirmation of that award before seeking to enforce that award in US courts. The Second Circuit reversed that decision, stating that the award creditors do not need to confirm their foreign arbitral awards before they can seek to enforce them. The Court of Appeals also reversed the District Court's holding that the doctrine of issue preclusion (also known as collateral estoppel) barred the claims against the alleged alter-egos. (CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., 846 F.3d 35 (2d Cir. 2017).)

Chapter 2 of the FAA implements the New York Convention. Section 207 provides that any party may:

Section 207 also provides that:

The threshold issue in the case was whether, read in context with the New York Convention, the term "confirm" as used in section 207 is the equivalent of "recognition and enforcement" as used in the New York Convention.

CBF Indústria De Gusa S/A and its affiliates (CBF, Brazilian companies) successfully brought claims in an ICC arbitration related to pig iron contracts against a now-defunct signatory respondent, Steel Base Trade, AG (SBT, a Swiss company). In the arbitration, CBF asserted that a variety of interrelated non-signatory companies and two non-signatory individuals, Hans Mende and Fritz Kundrun (collectively, the non-signatories) engaged in fraudulent transactions and representations in bankruptcy proceedings to remove assets from SBT for the benefit of the non-signatories.

The tribunal:

SBT's bankruptcy concluded without sufficient assets to satisfy the arbitral award.

CBF then sought to enforce the arbitral award in Federal District Court in New York against the non-signatories, arguing that they were "alter egos" and "successor[s]‐in‐interest" to the defunct award debtor. CBF also brought New York state law fraud claims directly against non-signatories.

The District Court dismissed the proceeding, holding that under the New York Convention, CBF had to first obtain confirmation of the ICC award in US court before moving to the enforcement stage of proceedings. When CBF refiled in the court for confirmation, the District Court rejected confirmation on the grounds that the award debtor, SBT, no longer existed under Swiss law, having been struck from the Swiss corporate registry upon completion of its bankruptcy proceeding. The District Court also rejected the New York law fraud claims, on the basis that the claims sought "a remedy previously sought by [CBF] in the ICC Arbitration" and therefore were barred by the doctrine of issue preclusion.

In reversing the decision of the District Court, the Second Circuit noted that there is understandable confusion about whether parties need to confirm a foreign arbitral award because section 207 uses the term "confirm" to describe the process by which a district court acts under its secondary jurisdiction to grant recognition and enforcement of a foreign arbitral award. The court noted that the entire purpose of the New York Convention was to make enforcement of a New York Convention award more straightforward and, in particular, to remove the need for a double exequatur (the removal of the previous requirement, under the earlier Geneva Convention on the Execution of Foreign Arbitral Awards), that before an award could be enforced in any other jurisdiction, the party seeking enforcement had to prove that the award had become "final" in the country in which it was made.

In order to avoid confusion, the court encouraged litigants and district courts to take care to specify explicitly:

(846 F.3d at 52.)

The court also noted that because issue preclusion is an equitable doctrine, it should not be applied rigidly. It reversed the District Court's application of issue preclusion so that the parties may be allowed to conduct discovery regarding fraud claims that were argued by the non-signatories to have been resolved by the arbitrators.

It appears that defendants argued that the fraud claims that were brought to court were the same as those decided in the arbitration and if so, that raises claim preclusion (also known as res judicata), not issue preclusion. It may be that the court considered the matter to concern issue preclusion because the defendants were not parties to the arbitration and did not participate in it.

In remanding the proceeding to the District Court, the Court of Appeals directed the District Court to evaluate the award creditor's effort to reach alleged alter egos of the award debtor under the standards set out in the New York Convention and Chapter 2 of the FAA. This direction to examine the alter-ego issue under federal law is notable because most US court decisions have applied state law to the issue of joining non-signatories (see Article, Joining non-signatories to an arbitration).

CBF Indústria de Gusa S/A v. AMCI Holdings, Inc., 846 F.3d 35 (2d Cir. 2017), opinion vacated and superseded on reh'g, (2d Cir. Mar. 2, 2017)