Earth Science Tech, Inc., v. Impact UA, Inc., No. 19-10118 (11th Cir. Apr. 14, 2020) [click for opinion]

Earth Science, Tech, Inc. (“Earth Science”), a Florida-based distributor of cannobidoil (“CBD”)-rich hemp-oil products in the United States, entered into an exclusive distribution agreement with Cromogen Biotechnology Corporation (“Cromogen”), a Salvadoran company that supplies hemp-based biotechnology. Four months into the agreement, Cromogen served Earth Science with a demand for arbitration asserting breach of contract, conversion, and tortious interference. Earth Science responded with a state court breach of contract claim. The case was removed to federal court and stayed pending the completion of arbitration.

In the arbitration, Earth Science contended that Cromogen’s tort claims fell outside the scope of the distribution agreement’s arbitration provision. The tribunal rejected this contention, noting the strong policy favoring arbitration and refusing to adopt Earth Science’s narrow interpretation of the agreement. The arbitration panel thereafter found in favor of Cromogen on its breach of contract and tort claims and awarded Cromogen $3,994,522.55, with the tort claims accounting for $3,763,200 of that amount. Cromogen moved to confirm the award in the district court and Earth Science cross-moved to partially vacate it. The district court confirmed the award.

On appeal, Earth Science contended that the tort claims were beyond the scope of the arbitration clause pursuant to § 10(a)(4) of the Federal Arbitration Act (the “FAA”). The Eleventh Circuit found, however, that the award was governed by the Panama Convention, as it arose out of an international commercial relationship and the parties were citizens of countries party to the Panama Convention. Article 5 of the Panama Convention sets forth seven exceptions that a party may invoke to object to the enforcement of an arbitration award, but § 10(a)(4) of the FAA is not one of them. As such, Earth Science’s argument had no merit. Yet the court held that, even if it could reach Earth Science’s § 10(a)(4) challenge, it would have nonetheless rejected it. The agreement provided clear and unmistakable evidence that, by incorporating the UNCITRAL Rules, the parties agreed to arbitrate the issue of arbitrability. Thus, it was up to the arbitrators to decide whether the tort claim was arbitrable.

The Eleventh Circuit similarly rejected Earth Science’s claim that the district court should have modified the arbitral award pursuant to § 11(a) of the FAA. Following the same logic, the court found that § 11(a) is not one of the seven exclusive bases for challenging an arbitration award resulting from arbitration governed by the Panama Convention. And, even assuming that the court could have modified the award, it explained that it would not have done so because § 11(a) did not authorize modification of arbitration awards based on challenges to either the tribunal’s methodology in arriving at the award or to the tribunal’s factual findings.

Accordingly, the Eleventh Circuit affirmed the district court’s decision to confirm the arbitration award.