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Jurisdiction U.S.A.

Tribunal U.S. District Court for the Northern District of New York

Date of the decision 03 August 2021

Case no./docket no. 5:21-CV-84

Case name Chongqing Loncin Engine Parts Co., Ltd. et al. v. New Monarch
Machine Tool, Inc.

Memorandum-Decision and Order

I. Introduction

On January 14, 2021, petitioners Chongqing Loncin Engine Parts Co., Ltd. («Chongqing») and 1
Nanjing Loncin Nemak Precision Machinery Co., Ltd. («Nanjing»), two Chinese engine parts
manufacturers, filed this action under the Federal Arbitration Act («FAA») and the United Na-
tions Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the «New
York Convention») seeking to confirm an arbitration award they received from the China In-
ternational Economic & Trade Arbitration Committee («CIETAC») against respondent New
Monarch Machine Tool, Inc. («New Monarch» or «respondent»), an American tool manufac-
turer based in Cortland, New York.1

The petition has been fully briefed and will be considered on the basis of the submissions 2
without oral argument.

II. Background2

Chongqing and Nanjing (collectively «petitioners») are two Chinese companies that purchase 3
and import machine tools used in the manufacture of automobile engines and other machine
parts. New Monarch is an American company that manufactures and exports machine tools
to international customers in China and elsewhere.

As relevant here, in late 2013 and early 2014 the parties entered into three sales contracts 4
(No. DLBJ130018, No. DLBJ130019, and No. DLBJ140010) in which New Monarch agreed to
supply and install certain CNC boring machines at petitioners’ manufacturing facilities in
China. Each sales contracts contained an arbitration clause:

1
Petitioners initially laid venue in the Southern District of New York. However, on January 19, 2021, U.S. District
Judge Gregory H. Woods issued an order to show cause why the matter should not be transferred to the Northern
District of New York in light of the petition’s allegation that respondent was «located» in Cortland County. See
Dkt. No. 15. After petitioners consented, the case was transferred to this judicial district pursuant to 28 U.S.C.
§ 1406(a). Dkt. No. 16.
2
The background is taken from the petition and attached exhibits.
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All disputes in connection with this Contract or the execution thereof shall be settled
friendly through negotiation. In case no settlement can be reached, the case may then
be submitted for arbitration to the International Economic and Trade Arbitration Com-
mittee of the People’s Republic of China in accordance with its rules and procedures.
The arbitration shall take place in Beijing, China. The Chinese laws shall be applied in
arbitration. The decision of the Arbitration Committee shall be final and binding upon
both parties. Neither party shall seek recourse to a law court or other authorities to
appeal for revision of the decision. Arbitration fee shall be borne by the losing party.
During the course of the arbitration proceedings, the provisions of this Contract shall
not be affected thereby except for the portion of this Contract under the arbitration
and this Contract shall continuously be performed.

On August 16, 2016, petitioners claimed that New Monarch had materially breached its obli- 5
gations under the sales contracts by, inter alia, defaulting on the delivery and installation of
the agreed-upon machines. Petitioners declared that the three sales contracts were therefore
terminated under the United Nations Convention on Contracts for the International Sale of
Goods («CISG»).

On September 13, 2016, in accordance with the arbitration clause written into each sales con- 6
tract, petitioners applied for arbitration to CIETAC, an arbitration institution headquartered in
Beijing, China.3 Although CIETAC initially opened three separate arbitration cases (one for
each sales contract), the Arbitration Tribunal (the «Arbitration Panel») later consolidated and
merged them into a single arbitration proceeding.

On April 19, 2017 and October 27, 2017, the Arbitration Panel held hearings on the various 7
procedural and substantive disputes between the parties. Ultimately, the Panel found that
petitioners had rightfully terminated the three sales contracts with New Monarch because of
serious quality problems with the goods in question.

On June 28, 2018, the Arbitration Panel rendered an Arbitral Award (the «Arbitral Award») in 8
favor of petitioners in the amount of $2,407,385.00 plus interest payable within thirty days.
New Monarch did not pay the Award. This petition followed.

III. Legal Standard

«The FAA was enacted in 1925 in response to widespread judicial hostility to arbitration agree- 9
ments.» AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011). «[T]he purpose behind its
passage was to ensure judicial enforcement of privately made agreements to arbitrate.» Dean
Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 219 (1985). Consequently, the Act creates a «strong
presumption in favor of enforcing arbitration awards.» Wall Street Assocs., L.P. v. Becker Pari-
bas Inc., 27 F.3d 845, 849 (2d Cir. 1994).

3
Initially established by the People’s Republic of China in 1954, CIETAC «operates independently of the Chinese
government, with CIETAC arbitrators having the power to issue awards that Chinese law will recognize as ‘final
and binding.’» In Re Guo, 965 F.3d 96, 100–101 (2d Cir. 2020).
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To effectuate its purpose, the FAA also «provides for expedited judicial review to confirm, 10
vacate, or modify arbitration awards.» Hall Street Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576,
578 (2008). However, courts have an «extremely limited» role in reviewing such awards. Lan-
dau v. Eisenberg, 922 F.3d 495, 498 (2d Cir. 2019). «Indeed, confirmation of an arbitration
award is a summary proceeding that merely makes what is already a final arbitration award a
judgment of the court.» Salus Cap. Partners, LLC v. Moser, 289 F. Supp. 3d 468, 476 (S.D.N.Y.
2018) (cleaned up).

Importantly, though, the Act does not «independently confer subject matter jurisdiction on 11
the federal courts.» Scandinavian Reinsurance Co. Ltd. v. St. Paul Fire & Marine Ins. Co., 668
F.3d 60, 71 (2d Cir. 2012) (cleaned up). Instead, «there must be an independent basis of juris-
diction before a district court may entertain petitions to confirm or vacate an award under
the FAA.» Id. As relevant here, the New York Convention governs the enforcement of arbitral
awards stemming from disputes that are «commercial and … not entirely between citizens of
the United States.» Republic of Ecuador v. Chevron Corp., 638 F.3d 384, 391 (2d Cir. 2011)
(citation omitted).

«Congress implemented the New York Convention by enacting Chapter 2 of the Federal Arbi- 12
tration Act.» Goel v. Ramachandran, 823 F. Supp. 2d 206, 210 (S.D.N.Y. 2011). Under Sec-
tion 207 of the Act, any party may, «[w]ithin three years after an arbitral award … is made, …
apply to any court having jurisdiction … for an order confirming the award.» 9 U.S.C. § 207.

IV. Discussion

Petitioners contend that they are entitled to an order confirming the Arbitral Award because 13
they have satisfied all of their obligations under the FAA and the New York Convention. See
Pets.’ Mem., Dkt. No. 13.4 In opposition, New Monarch offers three reasons why the Award
should not be confirmed: (1) the arbitration was not conducted in accordance with CIETAC’s
own procedures and rules; (2) the Award is against the public policy of the United States;
and/or (3) the Award includes attorney’s fees, which are outside the scope of the parties’
arbitration agreements. Resp’t Mem., Dkt. No. 29 at 6–11.

«When a party applies to confirm an arbitral award under the New York Convention, ‘[t]he 14
court shall confirm the award unless it finds one of the grounds for refusal or deferral of recog-
nition or enforcement of the award specified in the said Convention.’» Encyclopaedia Univer-
salis S.A. v. Encyclopaedia Britannica, Inc., 403 F.3d 85, 90 (2d Cir. 2005) (quoting 9 U.S.C.
§ 207).5 Under Article V of the Convention, the grounds for refusing to recognize or enforce a
foreign arbitral award are:

4
Pagination corresponds to CM/ECF.
5
«The party seeking enforcement need only submit an authentic copy of the award, the agreement to arbitrate
and, if the award is in a language other than English, a duly certified translation.” Jiangsu Changlong Chems., Co.,
Inc. v. Burlington Bio-Med. & Sci. Corp., 399 F. Supp. 2d 165, 168 (E.D.N.Y. 2005).
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(1)(a) The parties to the agreement were under some incapacity, or the agreement is
not valid under the law;

(1)(b) The party against whom the award is invoked was not given proper notice of
the appointment of the arbitrator or of the arbitration proceedings or was oth-
erwise unable to present his case;

(1)(c) The award deals with a difference not contemplated by or not falling within the
terms of the submission to arbitration, or it contains decisions on matters be-
yond the scope of the submission to arbitration;

(1)(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties or, failing such an agreement,
was not in accordance with the law of the country where the arbitration took
place;

(1)(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law
of which, that award was made;

(2)(a) The subject matter of the difference is not capable of settlement by arbitration
under the law of the country where recognition and enforcement is sought; or

(2)(b) The recognition or enforcement of the award would be contrary to the public
policy of the country in which enforcement or recognition is sought.

See Yusuf Ahmed Alghanim & Sons v. Toys «R» Us, Inc., 126 F.3d 15, (2d Cir. 1997). «[T]he 15
party opposing enforcement of an arbitral award has the burden to prove that one of the
seven defenses under the New York Convention applies.» Zeiler v. Deitsch, 500 F.3d 157, 164
(2d Cir. 2007) (cleaned up). «The burden is a heavy one, as the showing required to avoid
summary confirmance is high.» Id.

A. CIETAC’s Rules and Procedures

First, New Monarch contends that the Arbitral Award should not be confirmed because the 16
Arbitration Panel failed to follow CIETAC’s rules and procedures. Resp’t Mem. at 6–7. As re-
spondent explains, the Panel took well over a year to render a decision even though CIETAC’s
arbitration rules impose a six-month deadline. Id. at 6.

Upon review, this timeliness argument must be rejected. «Under Article V(1)(d) [of the New 17
York Convention], [r]espondent must show that the composition of the arbitral authority or
the arbitral procedure was not in accordance with the agreement of the parties, or, failing
such agreement, was not in accordance with the law of the country where the arbitration took
place.» BSH Hausgeräte GmbH v. Kamhi, 291 F. Supp. 3d 437, 443 (S.D.N.Y. 2018) (cleaned
up).

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The «arbitration proceedings of this case [were] governed by the Arbitration Rules of the Ar- 18
bitration Commission effective as of January 1st, 2015.» Ex. D to Pet., Dkt. No. 8-5 at 10. Arti-
cle 48 of these Rules require a CIETAC arbitration panel to render an award within six months
unless the tribunal receives permission from the President of the Arbitration Court to extend
the deadline. Ex. 1 to Ping Yu Decl., Dkt. No. 29-9 at 25.

Contrary to New Monarch’s argument, the Arbitration Panel appears to have complied with 19
this Rule. The certified English translation of the Arbitral Award explicitly states that the Panel
sought and received permission to extend the deadline from the President of the Arbitration
Court. Ex. D to Pet., Dkt. No. 8-5 at 12 («To meet the needs of the ongoing proceedings, upon
application by the arbitration tribunal, the president of the court of arbitration agreed and
decided to extend the time deadline for making a verdict on the case to June 28th, 2018.»).

In short, New Monarch has not shown that the «the arbitral procedure was not in accordance 20
with the agreement of the parties» and therefore has not carried its «heavy» burden of prov-
ing that the Article V(1)(d) defense applies. Accordingly, this argument must be rejected.

B. Public Policy

Second, New Monarch contends that the Arbitral Award should not be confirmed because the 21
Arbitration Panel’s long delay in rendering a decision «is against the public policy of the United
States calling for just and expeditious resolution of disputes.» Resp’t Mem. at 8–10.

New Monarch’s public policy argument is actually two-fold: that the one-year period between 22
the final hearing (on October 27, 2017) and the Arbitration Panel’s entry of a final Award (on
June 28, 2018) took too long and that, during this long delay, U.S.-Chinese trade relations de-
teriorated, making it «impossible for an American company like New Monarch to get a fair
shake before the Chinese-based CIETAC.» Resp’t Mem. at 8–9.

Upon review, this argument will also be rejected. «Article V(2)(b) [of the New York Conven- 23
tion] allows a court to refuse enforcement of an arbitration award where enforcement would
violate the forum state’s public policy.» Yukos Cap. S.A.R.L. v. Samaraneftegaz, 592 F. App’x
8, 11 (2d Cir. 2014) (summary order). However, the public policy defense in Article V(2)(b)
must be «construed very narrowly to encompass only those circumstances where enforce-
ment would violate our most basic notions of morality and justice.» Telenor Mobile Commcn’s
AS v. Storm LLC, 584 F.3d 396, 411 (2d Cir. 2009) (cleaned up).

As an initial matter, the Second Circuit has explicitly recognized that CIETAC is an organization 24
that «operates independently of the Chinese government.» In Re Guo, 965 F.3d at 101. But
even assuming CIETAC was in some way affiliated with the Chinese government, this argument
boils down to an assertion that the confirmation of a foreign arbitral award somehow hinges
on the current state of trade relations between signatories to the New York Convention.

That is not the law. «The goal of the Convention, and the principal purpose underlying Amer- 25
ican adoption and implementation of it, was to encourage the recognition and enforcement
of commercial arbitration agreements in international contracts and to unify the standards by

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which agreements to arbitrate are observed and arbitral awards are enforced in the signatory
countries.» Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n. 15 (1974).

In sum, New Monarch has not shown that confirming a monetary arbitral award won by a 26
foreign party in a contract dispute over the delivery of commercial goods would «be directly
at odds with a well[-]defined and dominant [American] public policy resting on clear law and
legal precedent.» St. Mary Home, Inc. v. Serv. Emps. Int’l Union, Dist. 1199, 116 F.3d 41, 46 (2d
Cir. 1997). Accordingly, this argument will be rejected.

C. The Panel’s Award of Attorney’s Fees

Third, New Monarch contends that the Arbitral Award should not be confirmed because it 27
improperly includes an award of attorney’s fees. Resp’t Mem. at 10–11. According to respond-
ent, the contractual arbitration clause in each of the three sales contracts «does not provide
for an award of attorney’s fees and costs in excess of the arbitration fee.» Id. at 10.

Upon review, this argument must be rejected. The arbitration clause in each sales contract 28
states that the «[a]rbitration fee shall be borne by the losing party.» According to New Mon-
arch, this quoted language «does not provide for an award of attorney’s fees and costs in
excess of the arbitration fee.» Resp’t Mem. at 10.

But New Monarch’s assertion is begging the question. It relies on the implicit premise that the 29
definition of «arbitration fee» necessarily excludes attorney’s fees or other costs associated
with the arbitration. And that might be true, but the burden of establishing a defense invoked
under Article V of the New York Convention lies with the respondent. Respondent not pointed
to a clear definition of this contract term – whether in the sales contracts, the rules and pro-
cedures governing CIETAC arbitration, or Chinese law – that would support its desired conclu-
sion.

Equally problematic for this argument is the fact that the rules and procedures governing the 30
arbitration appear to explicitly permit the tribunal to award attorney’s fees. As relevant here,
Article 52 of CIETAC’s Arbitration Rules empower the Arbitration Panel to:

decide in the arbitral award, having regard to the circumstances of the case, that the
losing party shall compensate the winning party for the expenses reasonably incurred
by it in pursuing the case. In deciding whether or not the winning party’s expenses
incurred in pursuing the case are reasonably, the arbitral tribunal shall take into con-
sideration various factors such as the outcome and complexity of the case, the work-
load of the winning party and/or its representative(s), the amount in dispute, etc.

Ex. 1 to Ping Yu Decl., Dkt. No. 29-9 at 27.

This language allocates authority to the Arbitration Panel to award attorney’s fees in an ap- 31
propriate case. New Monarch has not pointed to any clear basis on which to conclude that the
parties (in the sales contracts or elsewhere) intended to limit the authority that is otherwise
conferred on the Panel by these Arbitration Rules. Cf. In re Arb. Between Gen. Sec. Nat. Ins.
Co. & AequiCap Program Adm’rs, 785 F. Supp. 2d 411, 419 (S.D.N.Y. 2011) (rejecting similar
6
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argument where parties «used expansive language»). Thus, especially in light of the substan-
tial deference owed to foreign arbitration awards, this argument must also be rejected.

D. Remaining Matters

In addition to confirmation of the Arbitral Award, the verified petition also requests (1) the 32
entry of pre-judgment interest running from July 27, 2018 and (2) an award of attorney’s fees
related to the additional costs of bringing this confirmation proceeding in federal court. Dkt.
No. 8 at 6.

Upon review, petitioner’s request for pre-judgment interest will be denied. There is a general 33
presumption in favor post-award, pre-judgment interest. In re Arb. Between Westchester Fire
Ins. Co. v. Massamont Ins. Agency, Inc., 420 F. Supp. 2d 223, 226 (S.D.N.Y. 2005). However,
such an award is only appropriate if it would be «fair, equitable and necessary to compensate
the wronged party.» Wickham Contracting Co. v. Local Union No. 3, Int’l Brotherhood of Elec.
Workers, AFL-CIO, 955 F.2d 831, 835 (2d Cir. 1992).

Petitioners have failed to identify any provision of the Arbitration Panel’s Award that would 34
support the entry of pre-judgment interest. Cf. Oracle Co. v. Wilson, 276 F. Supp. 3d 22, 34
(S.D.N.Y. 2017) («[C]ourts in this Circuit have found that a district court may not provide pre-
judgment interest if the Arbitrator’s award is silent on such interest.»). Nor have they indi-
cated the rate of interest they seek, or explained why that rate would be appropriate under
the governing law. In short, because petitioners have failed to establish that an award of pre-
judgment interest in this case would be «fair, equitable and necessary,» the request will be
denied.

Petitioners’ request for additional attorney’s fees will also be denied. «The FAA does not pro- 35
vide for an award of attorney’s fees and expenses for arbitration-confirmation proceedings,
but a court remains authorized to enter such an award pursuant to its inherent equitable pow-
ers.» Seneca Nation of Indians v. New York, 420 F. Supp. 3d 89, 106 (W.D.N.Y. 2019) (cleaned
up). «In the arbitration context, the guiding principle has been stated as follows: when a chal-
lenger refuses to abide by an arbitrator’s decision without justification, attorney’s fees and
costs may properly be awarded.» Id.

Upon review, that standard has not been met. Cf. Seneca Nation of Indians, 420 F. Supp. 3d at 36
106 («Such awards may be made, for example, when a party pursues a frivolous course.»).
Even assuming otherwise, petitioners have failed to substantiate their request with contem-
poraneous time records or other supporting documentation. Accordingly, the request for at-
torney’s fees will also be denied.

V. Conclusion

Petitioners’ motion to confirm the Award will be granted. However, petitioners’ requests for 37
pre-judgment interest and for attorney’s fees incurred in bringing this confirmation action will
be denied.

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Therefore, it is 38

ORDERED that

1. The Arbitral Award is CONFIRMED; and

2. Judgment shall be entered in the amount of $2,407,385.00.6

The Clerk is directed to enter a judgment accordingly and close the file.

IT IS SO ORDERED.

6
Post-judgment interest shall accrue on the full amount of the judgment in accordance with 28 U.S.C. § 1961(a)
because «[t]he award of post-judgment interest is mandatory on awards in civil cases as of the date judgment is
entered.» Lewis v. Whelan, 99 F.3d 542, 545 (2d Cir. 1996).
8