Federal Arbitration Act, Not Georgia Arbitration Code, Applied to Review of Arbitration Award

In Gulfstream Aerospace Corp. v. OCELTIP Aviation 1 PTY Ltd, 2022 U.S. App. LEXIS 10382 (11th Cir. Apr. 18, 2022), the Eleventh Circuit rejected an argument that the parties’ contract provided for the Georgia Arbitration Code (“GAC”), rather than the Federal Arbitration Act (“FAA”), to apply to proceedings to confirm or vacate an arbitration award.

The underlying dispute arose from an agreement for the sale of a business jet. Gulfstream (a Georgia company) said that Oceltip (an Australian company) failed to pay for the aircraft as required by the parties’ agreement; Oceltip said that Gulfstream had anticipatorily terminated the agreement, entitling Oceltip to damages. The parties’ contract, under the subheading “Arbitration,” required arbitration “by the American Arbitration Association (“AAA”) in accordance with the provisions of its Commercial Arbitration Rules,” and, in a separate provision under the same subheading, said that the contract “shall be governed by the laws of the State of Georgia, and the U.N. Convention on Contracts for the International Sale of Goods . . . shall not apply, without reference to rules regarding conflicts of law.”

After the parties’ dispute arose, Oceltip submitted an arbitration demand to the AAA, and Gulfstream counterclaimed. The arbitration was conducted in Savannah, and the arbitration panel awarded Gulfstream $8 million, plus fees, costs, and expenses. Gulfstream filed an application in federal court to confirm the award. Oceltip filed a state-court action seeking to vacate the award, and Gulfstream removed that case to federal court. After consolidating the cases, the district court rejected Oceltip’s argument that the parties’ contract deprived the federal court of jurisdiction; granted the motion to confirm the award; and denied the motion to vacate the award. Oceltip appealed.

In a per curiam opinion, the Eleventh Circuit affirmed. First, it rejected Oceltip’s argument that the court lacked subject-matter jurisdiction. Because Oceltip is an Australian company, the court had jurisdiction under Chapter 2 of the FAA, which codifies the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). (Because the award was not “entirely between citizens of the United States,” the court had no need to apply the Supreme Court’s recent decision in Badgerow v. Walters, 142 S. Ct. 1310 (2022).) Ocelip argued that the contract’s choice-of-law provision eradicated federal jurisdiction, but “state law cannot strip a federal court of federal jurisdiction.”

The court also rejected Oceltip’s argument that the contract’s choice-of-law provision required that confirmation or vacatur of the arbitration award be decided under the GAC rather than the FAA. The relevant difference between the two standards is the availability under the GAC, but not the FAA (at least as applied in the Eleventh Circuit), of a challenge to an arbitration award based on the arbitrators’ alleged “manifest disregard of the law.” Oceltip did not argue in the district court or on appeal that any of the bases for vacatur under the New York Convention applied. Instead, it claimed that the arbitrators had acted in manifest disregard of the law, requiring vacatur of the award under the GAC. 

The court did not reach that issue, however, because it held that the FAA, and not the GAC, governed. Taking the language in the parties’ contract in context and applying its plain meaning, the court noted, the reference to Georgia law referred to the law governing the contract but did not supply the standards for review of the arbitral award. This was demonstrated by the contract’s contrasting “Georgia law” with the U.N. Convention on Contracts for the International Sale of Goods, which supplies no standards for the review of arbitration awards.

The court also rejected Oceltip’s argument that Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468 (1989), required that the GAC be applied. The Court in Volt did affirm application of California’s rules governing arbitration, but in doing so “deferred to the state court’s construction of its own state law and did not interpret the contract there de novo.” Volt’s procedural posture was critical to its result, as made clear by the Supreme Court’s later decision in Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995), which applied the FAA to a contract which “shall be governed by the State of New York.”

Because the FAA applied and Oceltip had waived any argument under the FAA, the court affirmed the district court’s judgment confirming the award in Gulfstream’s favor.

Posted by Valerie Sanders.

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