Case of the Day: Clientron Corp. v. Devon IT, Inc.
Posted on August 14, 2014
The case of the day, Clientron Corp. v. Devon IT, Inc. (E.D. Pa. 2014), seems flagrantly wrong. The facts were simple enough. Clientron was a Taiwan corporation. It had a contract with Devon, a Pennsylvania corporation, for the manufacture and delivery of computer components. The contract had an arbitration agreement. A dispute arose, and Clientron commenced an arbitration before the Chinese Arbitration Association in Taiwan. Although Devon argued that the dispute was not arbitrable, the tribunal determined that it had jurisdiction and entered an award for $6.5 million in favor of Clientron. Clientron obtained a judgment in Taiwan enforcing the arbitral award. There had been no decision in a revocation proceeding Devon had brought in Taiwan.
Clientron sought recognition and enforcement of the arbitral award (but not the Taiwanese judgment) in the Eastern District of Pennsylvania. The court had diversity jurisdiction. The counts were for recognition of the award under the UFMJRA and for confirmation of the award under the New York Convention. Already you will begin to see the oddness of the case! Devon moved to dismiss.
Taiwan is not a party to the New York Convention. The United States made a declaration, at the time of ratification, that “The United States of America will apply the Convention, on the basis of reciprocity, to the recognition and enforcement of only those awards made in the territory of another Contracting State.” The judge engaged in a complicated analysis, ultimately concluding that Chapter 2 of the FAA did not apply and that therefore, the award could not be confirmed.
Let’s assume that the judge was right and Chapter 2 of the FAA did not apply. Does it follow that the award should not be confirmed? I think not. Even if Chapter 2 of the FAA does not apply, and even if the New York Convention does not require confirmation, Chapter 1 of the FAA does apply. Restatement (Third) of the Law of International Commercial Arbitration § 4-26 rptr’s n. b. To be sure, Chapter 1 does not provide an independent basis for jurisdiction, but that’s not a problem here, because the court had diversity jurisdiction. “Federal courts have subject matter jurisdiction over an action to enforce a non-Convention award to the extent that an independent basis of federal subject matter jurisdiction exists.” Id. § 4-26(b). I suppose the judge might be saying that Clientron gave its claim the wrong label by seeking to proceed under Chapter 2 instead of Chapter 1, but that kind of analysis is not, I think, consistent with the philosophy of the Rules of Civil Procedure.
This decision is particularly puzzling in light of the leeway the judge gave Clientron with regard to its claim under the UFMJRA. The judge concluded, correctly, that the award itself was not a foreign judgment. But he noted that Clientron had obtained a Taiwanese judgment on the award, and thus it would exalt form over substance to require Clientron to file an amended complaint seeking recognition of the judgment rather than of the award. There was much more on the UFMJRA claim, but given that Clientron clearly was entitled to seek recognition under Chapter 1 of the FAA, I’m not going to analyze the rest of the UFMJRA decision.