The case of the day is Nomanbhoy v. Vahanvaty (N.D. Ill. 2011). Sabbhir Nomanbhoy was a shareholder and CEO of Dyna Care Health Ventures, which provided home nursing services in several states. His relatives, Aymen Tyebjee, Nafeesa Moosabhoy, Yunus Nomanbhoy, and Zehra Vahanvaty, were also involved in the business.The family, all US citizens, were members of the Dawoodi Bohra sect of Shi’ite Islam. An intra-family dispute arose, which resulted in Sabbhir’s removal as CEO. Sabbhir and Tyebjee, his sibling and antagonist, met with their religious leader, Shehzada Qaid Johar Bhaisheb, in California in an attempt to resolve their dispute. The attempt was unsuccessful, and Shehzada Qaid asked the parties to come to London to try again. Another religious leader, Shehzada Mufaddal BS Saifuddin Saheb, successfully helped the parties resolve their dispute. They executed a written settlement agreement, which provided for a hisab, a settlement of accounts, and further provided for arbitration by Shehzada Mufaddal if the parties could not settle the accounts on their own. When the parties could not agree on the accounting, they arbitrated the issue before Shehzada Mufaddal in Sri Lanka. Shehzada rendered an award in 2008. In 2011, Sabbhir Nomanbhoy sought confirmation in Chicago. The relatives asserted that the court lacked subject-matter jurisdiction and moved to dismiss.

Under § 202 of the FAA, a foreign arbitral award does not fall under the New York Convention if it arises out of a relationship that is “entirely between citizens of the United States,” unless the relationship “involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.”

The judge found that the parties’ relationship lacked a relation with a foreign state. The parties had signed a settlement agreement in England, but not because their dispute had any relationship with England, but only to accommodate Shehzada Mufaddal’s travel schedule. The parties envisaged performance of the hisab in the United States. There is authority for the view that despite the plain language of § 202, any award made in a foreign country is within the scope of the statute; but no party raised these precedents, and the argument was therefore waived.

If the outcome of this case is correct, is the result that an award in a dispute between American citizens without a tie to a foreign state cannot be confirmed if the parties happen to conduct their arbitration in a foreign state? No—it simply means that Chapter 2 of the FAA does not vest the District Courts with jurisdiction to hear such cases. The District Courts may have an independent basis for jurisdiction (e.g., diversity of citizenship), and even if there is no federal jurisdiction, a party could seek confirmation of the award in a state court.