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The 2nd U.S. Circuit Court of Appeals has clarified the standard under which companies must consent to judicial confirmation of international arbitration awards. Answering an unresolved question related to the Federal Arbitration Act, the circuit found that a section of the act that requires the parties to explicitly consent to judicial confirmation of arbitration awards was trumped by another section of the law that does not. The panel’s decision in Phoenix Aktiengesellschaft v. Ecoplas Inc., 03-9000, by Judge Sonia Sotomayor, concerned the provisions of the Arbitration Act put in place both before and after the implementation of the Convention on Recognition and Enforcement of Foreign Arbitral Awards. The court described the convention as a measure designed to encourage international commercial arbitration agreements and unify the standards by which they are observed and enforced in member countries. In 1993, Phoenix, a German corporation, granted the U.S.-based Ecoplas the exclusive license to produce and sell its polyester moulding compounds and also agreed to provide Ecoplas with “secret technical knowledge as well as technical know-how relative to the manufacture” of those compounds. The agreement stated that the venue for arbitration in the event of a dispute would be the International Chamber of Commerce in Zurich, which “shall have jurisdiction at the exclusion of regular courts.” In 1997, Phoenix told Ecoplas that it had sold its business portfolio to Bakelite AG and asked Ecoplas to agree to the transfer of the licensing agreement. When Ecoplas asserted that the agreement was therefore terminated, Phoenix alleged the termination was premature and Ecoplas’ refusal to allow the license transfer meant the contract was still in force. Ecoplas contended that the two sides had agreed to terminate the agreement in 1997 and the company refused to pay licensing fees in 1997 and 1998. Phoenix filed a complaint in Zurich and prevailed. An arbitrator ruled in 2000 that the sale to Bakelite did not void the contract and that Phoenix was not required to provide additional technical assistance. When Ecoplas refused to pay the approximately $100,000 in damages and additional monies for arbitration costs and legal fees, Phoenix filed suit in the Western District of New York seeking confirmation of the award pursuant to the convention. NO CONSENT Ecoplas contended that the arbitration agreement did not reflect an intent to consent to judicial confirmation of the award and, therefore, Judge Richard J. Arcara did not have jurisdiction over the dispute. Adopting a magistrate judge’s recommendation, Judge Arcara disagreed. On the appeal, the issue was the conflict between Chapter 1 of the Federal Arbitration Act, 9 U.S.C. �9, and Chapter 2, codified in �207 of the act when Congress implemented the convention in 1970. Chapter 1, Judge Sotomayor said, “is more restrictive in that it requires prior consent-to-confirmation by both parties.” “By including a consent-to-confirmation requirement,” she said, quoting 2nd Circuit case law, “Congress aimed ‘to ensure that the parties have affirmatively agreed to the application of the federal substantive law contemplated by the Act to the interpretation” of their arbitration agreement. Ecoplas argued that Arcara should be reversed because the arbitration agreement with Phoenix failed to conform to �9′s consent-to-confirmation requirement. But Sotomayor and her fellow judges on the panel, Jon O. Newman and Guido Calabresi, disagreed. “Section 207 does not in any way condition confirmation on express or implied consent,” she said. “Because the plain language of �207 authorizes confirmation of arbitration awards in cases where �9′s consent requirement expressly forbids such confirmation, we hold that the two provisions conflict. Accordingly, we hold that �207 preempts �9′s consent-to-confirmation requirement in cases under the Convention.” Sotomayor said that, by so ruling, the court was joining the only other circuit to have considered the issue — the 5th Circuit in the 1997 case of McDermott Int’l Inc. v. Lloyds Underwriters of London, 120 F.3d 583. The 2nd Circuit ruled against Ecoplas on its claim that enforcement of the award should be refused because the company was denied an opportunity to present its defense in arbitration, with Sotomayor calling the claim “groundless.” Alan J. Bozer of Phillips Lytle in Buffalo, N.Y., represented Ecoplas. Kevin D. Szczepanski of Hodgson Russ in Buffalo represented Phoenix.

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