Seventh Circuit Analyzes Its Jurisdiction Under The Panama Convention

International arbitration can be tricky, and it's not often that the Seventh Circuit has an opportunity to analyze the grounds for its jurisdiction in this area. That makes the court's recent decision in Pine Top Receivables of Illinois v. Banco de Seguros del Estado, Nos. 13-1364 & 13-2331 (7th Cir. Nov. 7, 2014), a unique case worth remembering.

The case began when Pine Top sought to compel arbitration by filing a complaint in the Northern District of Illinois against Banco de Seguros del Estado, an entity wholly owned by Uruguay. The dispute concerned approximately $2.3 million that Pine Top claimed Banco owed under reinsurance contracts. The district court denied the motion to compel, and Pine Top took an interlocutory appeal under 9 U.S.C. § 16, as it was authorized to do under that part of the Federal Arbitration Act. Or was it?

The issue wasn't whether § 16 allowed for interlocutory appeals from orders denying motions to compel. It clearly does, since subsections (a)(1)(B) and (a)(1)(C) allow for "[a]n appeal [to] be taken from an order . . . (B) denying a petition under section 4 of this title to order arbitration proceed, [or] (C) denying an application under section 206 of this title to compel arbitration." There can't be much debate there.

What was at issue—and what concerned the Seventh Circuit enough to order supplemental briefing on an issue that it thought "ha[d] escaped the attention of [its] sister circuits . . . [and] escaped mention by commentators"—was whether § 16 applied at all to an arbitration involving a Uruguayan party.

A brief tour of the Federal Arbitration Act is in order. Most of the FAA is contained in chapter 1 of title 9 of the United States Code. That's where § 16 resides, for example. Chapter 2 of the FAA implements the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or what most people call the "New York Convention." 150 countries are signatories, not including Uruguay. Chapter 3 of the FAA implements the smaller (with 19 countries) Inter-American Convention on International Commercial Arbitration, or the "Panama Convention" for short, to which Uruguay is a party.

Section 16 contains clear language making it applicable to chapters 1 and 2, so this question wouldn't have arisen if the foreign party had been covered by the New York Convention. But when Congress added § 16 in 1988, there was a chapter 1 and a chapter 2. Chapter 3 wasn't added until 1990, but § 16 wasn't then...