Jiangsu Beier Decoration Materials Co. v. Angle World LLC, No. 21-3143 (3d Cir. Nov. 3, 2022)[1]
Factual Background
Jiangsu Beier Decoration Materials Co, Ltd. (“Jiangsu”) was a Chinese manufacturer of flooring products. In 2016, Jiangsu entered into an agreement with Angle World LLC (“Angle World”), a Pennsylvania-based company, that provided that Angle World would serve as Jiangsu’s exclusive distribution agent in the U.S. According to Jiangsu, as of June 2018, Angle Word owed Jiangsu over $1.3 million under the distribution agreement. As a result, the parties decided to negotiate a settlement.
On June 28, 2018, Jiangsu and Angle World signed a memorandum of understanding, under which Angle World agreed to pay Jiangsu $528,227.59 within six months (the “June MOU”). On July 10, 2018, a representative from Jiangsu sent Angle World a revised agreement via email (the “July MOU”), which included an arbitration clause. On July 19, 2018, Jiangsu emailed Angle World an amended version of the July MOU with a revised payment schedule. Angle World never signed the July MOU but the parties exchanged emails indicating that they had agreed to the revised payment schedule.
Angle World ultimately made only two of the six scheduled payments to Jiangsu, so Jiangsu initiated an arbitration against Angle World before the China International Economic and Trade Arbitration Commission (“CIETAC”). Angle World objected to CIETAC’s jurisdiction. Ultimately, Chinese courts determined that the July MOU, and the arbitration clause contained therein, were enforceable under Chinese law. The CIETAC arbitration panel adopted that decision, adding that the July MOU was also enforceable under the United Nations Convention on the International Sale of Goods (the “CISG“). On March 11, 2021, the arbitration tribunal ruled in favor of Jiangsu, determining that Angle World breached the July MOU and ordering Angle World to pay $624,227.59 for the breach, plus attorney fees.
The District Court Decision
Jiangsu then filed a petition before the U.S. District Court for the Eastern District of Pennsylvania, seeking confirmation of the award. Angle World moved to dismiss, arguing that Jiangsu did not demonstrate the existence of an arbitration agreement enforceable under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“). In opposition, Jiangsu argued that the district court should defer to the Chinese court’s finding of arbitrability and that the email correspondence between the parties created an enforceable arbitration agreement.
On October 28, 2021, the district court granted Angle World’s motion and dismissed Jiangsu’s petition. The court determined that Jiangsu had failed to produce an arbitration agreement enforceable under the New York Convention because Angle World never signed the July MOU and Jiangsu did not otherwise prove Angle World’s agreement to arbitrate. The court further held that the prior Chinese court and CIETAC rulings on arbitrability did not bind it because (i) they never determined if the July MOU was enforceable under the New York Convention and (ii) the court has an independent duty to assess if there is an enforceable agreement to arbitrate.
The Third Circuit Court Decision
Jiangsu appealed, arguing that (i) Angle World consented to arbitrate during the email exchange between the parties, even if it never signed the July MOU, and (ii) the district court should have deferred to the conclusions of the Chinese tribunals regarding the July MOU’s enforceability.
The Third Circuit vacated the district court’s decision. The Third Circuit first explained that federal pleading standards are inapplicable to petitions to confirm an arbitral award, and that a court need not limit its review to the factual allegations in the petition itself. The court then explained that the plain language of the New York Convention requires each signatory country to recognize “an agreement in writing under which the parties [agreed] to submit to arbitration.” Such an agreement may be “contained in an exchange of letters or telegrams.” Whether such an exchange of letters constitutes an agreement between the parties must be determined by background principles of contract law to the extent those principles do not conflict with the New York Convention.
From its review of the record, the Third Circuit was unable to determine whether the district court considered the exchange of emails relied on by Jiangsu, or limited its review to the four corners of the petition. The only two documents referenced in the district court’s opinion—the award and the July MOU—were attached as exhibits to the petition. Crucially, the district court “did not explain its implicit conclusion that Angle World’s electronic ‘exchange of letters’ was insufficient to manifest assent to the July MOU, nor did it explain the extent to which, if at all, background principles of contract law factored into that conclusion.” Thus, the Third Circuit vacated the district court’s orders and remanded the matter to the district court to consider the entirety of the record.
The Third Circuit made clear, however, that the district court was not bound by the prior decisions of the Chinese courts or CIETAC regarding whether the July MOU was enforceable. The New York Convention requires a court to independently determine the existence of an agreement to arbitrate, even if an arbitration panel in a foreign state has already rendered an award. Indeed, if a court deferred to a foreign panel’s finding of arbitrability, it would render the prerequisites to enforcement set out in the New York Convention superfluous and a meaningless formality. And, because the Chinese court did not consider whether the parties’ email exchanges satisfied the “writing” requirement of the New York Convention, the Chinese court was not entitled to comity on an issue it did not decide.
This Article was originally published in the North America Newsletter.
