Case of the Day: Ingaseosas International v. Aconcagua Investing

The case of the day, Ingaseosas Int’l Co. v. Aconcagua Inv. Ltd. (S.D. Fla. 2011), raises interesting questions of federal subject matter jurisdiction of motions to vacate awards made under the New York Convention. Ingaseosas and Aconcagua were both British Virgin Islands firms. They entered into a stock purchase agreement concerning shares in another BVI company that owned a Coca-Cola franchise in Ecuador. The agreement contained an arbitration clause requiring arbitration in disputes in Miami, subject to New York law. When the parties failed to consummate the stock purchase agreement, Aconcagua demanded arbitration and asserted a claim for breach of contract. Ingaseosas counterclaimed. The tribunal’s award was in favor of Aconcagua. Aconcagua sought recognition and enforcement of the award in the courts of the British Virgin Islands, and Ingaseosas sought to vacate the award in the federal court in Miami. When Ingaseosas failed to post a bond in the BVI proceeding, the court there granted Aconcagua’s application and entered a judgment in its favor. Aconcagua then filed a motion in the U.S. proceeding to confirm the award. The question in the case was whether the U.S. court had subject matter jurisdiction of Ingaseosas’s motion to vacate the award.

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Super-Duper Disregard Of Law

At the talk I gave last week on choice of law in international IP arbitration (thanks to those who attended!), someone asked whether a mistake as to the law governing the substance of an IP dispute would justify a court in refusing recognition and enforcement of the award. I gave what I think is the best (but not the indisputable) answer: no. Article V of the New York Convention does not list “manifest disregard of law, ” as the American cases call it, as grounds for refusal of recognition or enforcement. And I referred to the recent International Trading v. DynCorp case, which squarely held that manifest disregard is not a permissible basis for refusal of recognition and enforcement. (The survival of manifest disregard after the Hall Street case is hotly disputed, and I don’t mean to say that the cases are uniform on this).

But the question persisted. When we were discussing the limitations on the parties’ freedom to choose a law other than the law of the state of registration to decide certain core IP issues (e.g., the validity of a patent), someone asked whether there was no conflict of laws decision that would be so far beyond the pale that it would justify refusal of recognition and enforcement. Suppose, for example, that under the law of country X, drugs were not patentable subject matter. Suppose that an American drug company asserted an arbitrable claim for infringement against a competitor in country X for infringement of its U.S. patent in the United States, and suppose that the tribunal, sitting in country Y, decided that the U.S. patent was invalid under the law of country X. The competitor then sought recognition and enforcement of the award in the United States. Sure, the award would only have inter partes effect, but that is probably small comfort to the U.S. firm! Is it really the case that because manifest disregard of law is not grounds for refusal of recognition and enforcement, the U.S. court would have no choice but to recognize the award? Or as I have been thinking of the question: in those circuits that have rejected manifest disregard of law as a grounds for refusal of recognition and enforcement, is there some level of super-duper disregard of the law that justifies refusal of recognition?

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