Case of the Day: ECO Heating Systems v. Hamilton Engineering

The case of the day is ECO Heating Systems Groningen, N.V. v. Hamilton Engineering, Inc. (E.D. Mich. 2017). The case involves recognition of a foreign judgment and a claim that the foreign court lacked personal jurisdiction, just like yesterday’s case. But I want to focus on an odd issue of arbitrability in the case instead.

ECO, a Dutch firm, was a supplier of heat engines to Hamilton, an American company. The parties’ agreement had the following provision:

As good partners, Hamilton and ECO should settle disputes themselves. In the case parties cannot handle a dispute, the issue shall be settled face to face with Mr. Charles Fenner as an arbitrator. Swiss law is applicable to this working agreement.

Oy vey! This is not a well-drafted clause for many reasons that should appear obvious. What is the seat of the arbitration? What rules govern the arbitration? Does the choice of law govern the whole agreement, or just the arbitration clause, or what? And so forth. Perhaps most glaringly, as we will see, the arbitration provision does not say that a court could enter judgment on any award. Mr. Fenner, by the way, was the person who introduced the parties to each other.

When a dispute arose, ECO sought to initiate an arbitration, but Fenner refused to act as arbitrator on the grounds that he was personal friends of Hamilton’s principal. In the end, ECO sued in the Netherlands and obtained a default judgment for more than € 1 million. ECO sought recognition and enforcement in Michigan. Hamilton resisted recognition on the grounds that under the UFCMJRA, the judgment should not be recognized in light of the parties’ agreement to arbitrate. Here is the core of what the judge had to say:

The Working Agreement provides an overall intent to arbitrate. While ECO makes much of the fact that it specifies Fenner as the arbitrator, the addition of language requiring the parties to act as ‘good partners,’ and to ‘resolve disputes themselves,’ further underscores an overriding intent to keep their disputes out of the court system.

That said, the Court in its discretion declines to invalidate the Netherlands judgment on the grounds that it was obtained in violation of the arbitration clause. This is particularly appropriate in light of the confusion over what body of law applies and the finding that the Dutch court had personal jurisdiction over Hamilton.

It is true that arbitrability is a discretionary ground for non-recognition under the UFCMJRA, not a mandatory ground. So the judge had discretion to recognize the judgment, as the decision notes. However, it’s very odd that Mr. Fenner’s inability to serve as the arbitrator should have been so significant. Under § 5 of the FAA, when, for whatever reason, there is no arbitrator, the court can appoint one. I can imagine a judge reasoning that ECO should have petitioned for appointment of an arbitrator.

Another strange issue here: the dispute is arbitrable, so either party could have moved to compel arbitration. But since the agreement does not provide that a court could enter judgment on the award, the award could not be confirmed under the FAA (though note that the Revised Uniform Arbitration Act does not contain the language found in the FAA providing for confirmation “if the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court”).

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