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Diag Human S.E. v. Czech Republic-Ministry of Health

United States Court of Appeals, District of Columbia Circuit

October 26, 2018

Diag Human S.E., Appellant
Czech Republic-Ministry of Health, Appellee

          Argued September 6, 2018

          Appeal from the United States District Court for the District of Columbia (No. 1:13-cv-00355)

          Hyman L. Schaffer argued the cause and filed the briefs for appellant.

          Alana E. Fortna argued the cause for appellee. With her on the brief was Leonard Fornella. Dean A. Calland entered an appearance.

          Before: Srinivasan and Wilkins, Circuit Judges, and Randolph, Senior Circuit Judge.



         This is an appeal from the judgment of the district court refusing to enforce an arbitral award against the Czech Republic Ministry of Health and in favor of Diag Human, S.E., a corporation organized under the laws of the Principality of Liechtenstein. Under the New York Convention, federal courts enforce duly rendered foreign arbitral awards, subject to certain exceptions. The district court held that this award fell into one of those exceptions - the award was not "binding on the parties." Diag Human, S.E. v. Czech-Ministry of Health, 279 F.Supp.3d 114, 121 (D.D.C. 2017). For the reasons that follow, we agree.

         The parties have been engaged in this dispute for nearly three decades. The arbitration commenced after the Czech Republic allegedly interfered with Diag Human's blood plasma business in the early 1990s. The then-Minister of Health allegedly violated unfair competition laws by sending to Novo Nordisk, a Danish company and Diag Human's major business partner, a letter accusing Diag Human of ethical violations. This led Novo Nordisk to cease work with Diag Human, which was fatal to the latter's business in the Czech Republic. Further details concerning the background of the dispute are recounted in this court's previous opinion and not necessary to repeat here. Diag Human, S.E. v. Czech-Ministry of Health, 824 F.3d 131, 132-34 (D.C. Cir. 2016), cert. denied, 137 S.Ct. 1068 (2017).

         A series of arbitral awards flowed from proceedings pursuant to the parties' arbitration agreement. Initially, in 1997, an arbitral panel confirmed that the Czech Republic had committed a wrongful act and caused damages to Diag Human (the "Interim Award"). This award left the issue of the amount of damages for later proceedings. In 2002, this was followed by a partial damages award covering undisputed damages of approximately $10 million (the "Partial Award"). In 2008, an additional arbitral panel considered the full scope of damages and awarded Diag Human approximately $400 million in damages and interest, with further interest accruing until payment (the "Final Award"). The action in the district court sought to confirm the 2008 Final Award.

         "One of the traditional features of arbitration is its exclusion of appeal . . .." See Alexander J. Belohlávek, Arbitration Law of Czech Republic: Practice and Procedure 1349 (2013). Accordingly, most international arbitral systems use a single panel to produce a final and binding award. See, e.g., United Nations Comm'n on Int'l Trade Law, Arbitration Rules art. 34(2). But Czech arbitration law permits parties to agree to a review process in which a second arbitral panel can revisit the original award with the power to uphold, nullify, or modify it. Zakon o rozhodcim rizeni a o vykonu rozhodcich nalezu [Law on Arbitral Proceedings and Enforcement of Arbitral Awards], Zakon c. 216/1994 Sb. § 27 (Czech) [hereinafter Czech Arbitration Law]. Although in the Czech Republic this procedure is "rarely used by parties in practice," Belohlavek, supra, at 1350, it was used here. The arbitration agreement allowed a party to request a review of any arbitral award within 30 days of receipt.

         Each of the three awards was submitted for review according to this procedure. The Interim and Partial Awards were confirmed and upheld by review panels consisting of different arbitrators. In each case, an "arbitral award" was issued pursuant to § 23(a) of the Czech Arbitration Law explicitly upholding the decision of the first panel. The arbitral awards entered into legal force and effect following these confirmations. After the Final Award was issued, each of the parties challenged it and requested review, although Diag Human later withdrew its request. The review panel, after a lengthy delay, did not explicitly confirm the arbitral award as had the previous review panels. Instead, it issued a "Resolution" which "discontinued the proceedings." The effect of this Resolution on the 2008 Final Award is at the core of this controversy.

         We enforce foreign arbitral awards according to the New York Convention, "part of a 'carefully crafted framework for the enforcement of international arbitration awards.'" Belize Bank Ltd. v. Gov't of Belize, 852 F.3d 1107, 1110 (D.C. Cir. 2017) (quoting Belize Soc. Dev. Ltd. v. Gov't of Belize, 668 F.3d 724, 729 (D.C. Cir. 2012)), cert. denied, 138 S.Ct. 448 (2017); see also 9 U.S.C. §§ 201-208. A court "shall confirm the award unless it finds one of the grounds for refusal or deferral of recognition or enforcement" as specified in the Convention. 9 U.S.C. § 207. Article V sets out the circumstances that enable a court to refuse to enforce an award; these are tightly construed, and the burden is placed on the party opposing enforcement. Convention on the Recognition and Enforcement of Foreign Arbitral Awards art. V, opened for signature June 10, 1958, 21 U.S.T. 2517 [hereinafter New York Convention]; TermoRio S.A. E.S.P. v. Electranta S.P., 487 F.3d 928, 934-35 (D.C. Cir. 2007). "Recognition and enforcement of an award may be refused" if the "award has not yet become binding on the parties." New York Convention art. V(1)(e). An award may also be "set aside" by a "competent authority" of the rendering jurisdiction. Id.

         Under these circumstances, the district court found that the terms of the parties' arbitration agreement precluded the award from entering into legal effect to become "binding" under Article V(1)(e). The agreement specified that the award would go into effect "[i]f the review application of the other party has not been submitted within the deadline." Arb. Agreement ¶ V. The district court therefore ruled that because a party requested review, and the review "ended the arbitration," the award did not go into effect. Diag Human, 279 F.Supp.3d at 120-21.[1]

         We agree with the district court's result, but for different reasons. Not only the termination of the review, but also the content of the arbitration review panel's "Resolution," prevented the Final Award from becoming binding. Under the agreement, the parties had recourse to another arbitration panel, which was sufficient to prevent the award from becoming binding at that time. See Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v. Cubic Def. Sys., Inc., 665 F.3d 1091, 1100-01 (9th Cir. 2011) (citing Fertilizer Corp. of India v. IDI Mgmt., Inc., 517 F.Supp. 948, 958 (S.D. Ohio 1981)). The Resolution resulting from the review proceeding does not permit the award to stand. Instead, it offers multiple grounds for the award's invalidity. The review panel ...

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